Securities Registered Pursuant to Section 12(g)
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 10-KSB
---------------------
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1996
------------------------------
Commission File No. 33-41045
SARASOTA BANCORPORATION, INC.
A Florida Corporation
(IRS Employer Identification No. 65-0235255)
Two North Tamiami Trail
Suite 100
Sarasota, Florida 34236
(941) 955-2626
Securities Registered Pursuant to Section 12(b)
of the Securities Exchange Act of 1934:
NONE
----
Securities Registered Pursuant to Section 12(g)
of the Securities Exchange Act of 1934:
NONE
----
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _____
---
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and will not be contained, to the best of the
Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
Revenue for the fiscal year ended December 31, 1996: $3,468,888.
The aggregate market value of the Common Stock of the Registrant held by
nonaffiliates of the Registrant (312,827 shares) on March 15, 1997 was
$2,605,849. As of such date, no organized trading market existed for the Common
Stock of the Registrant. The aggregate market value was computed by reference to
the book value of the Common Stock of the Registrant at December 31, 1996. For
the purpose of this response, directors, officers and holders of 5% or more of
the Registrant's Common Stock are considered the affiliates of the Registrant at
that date.
The number of shares outstanding of the Registrant's Common Stock, as of March
15, 1997: 471,500 shares of $.01 par value Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
None.
Transitional Small Business Disclosure Format (check one):
Yes _______; No X
---
<PAGE>
PART I
Item 1. Description of Business.
- --------------------------------
Sarasota BanCorporation, Inc. (the "Company") was incorporated under the
laws of the State of Florida on December 28, 1990 for the purpose of organizing
Sarasota Bank (the "Bank") and purchasing 100% of the outstanding capital stock
of the Bank. The holding company structure provides flexibility for expansion of
the Company's banking business through acquisition of other financial
institutions and provision of additional banking-related services which the
traditional commercial bank may not provide under present laws.
The Bank commenced operations on September 15, 1992 in an office suite
on the ground floor of One Sarasota Tower, a twelve story glass-faced building
at the intersection of U.S. Highway 41 (Tamiami Trail) and Gulfstream Avenue in
downtown Sarasota, Florida.
The Bank is a full service commercial bank, without trust powers. The
Bank offers a full range of interest bearing and non-interest bearing accounts,
including commercial and retail checking accounts, money market accounts, NOW
and Super NOW accounts, individual retirement accounts, regular interest bearing
statement savings accounts and certificates of deposit. Commercial loans, real
estate loans, home equity loans and consumer/installment loans are offered by
the Bank. In addition, the Bank provides such consumer services as travelers
checks, cashiers checks, safe deposit boxes, bank by mail services, direct
deposit service, Visa and Mastercard accounts, automated teller services and
wire transfer services. The Bank's deposits are insured by the FDIC; however,
the Bank is not a member of the Federal Reserve System.
Market Area and Competition
The primary service area ("PSA") for the Bank encompasses approximately
fifteen square miles in and around Sarasota, Florida, and includes Bird Key, St.
Armand and Lido Key, which lie just off the coast of the City of Sarasota. In
addition, the Bank services customers outside the Bank's PSA, but within other
parts of Sarasota County. Competition among financial institutions in this area
is intense. There are 114 banking offices and 28 offices of savings and loan
associations within the PSA of the Bank. Most of these offices are branches of
or are affiliated with major bank holding companies.
Financial institutions primarily compete with one another for deposits.
In turn, a bank's deposit base directly affects such bank's loan activities and
general growth. Primary methods of competition include interest rates on
deposits and loans, service charges on deposit accounts and the designing of
unique financial services products. The Bank competes with financial
institutions which have much greater financial resources than the Bank, and
which may be able to offer a greater number and more unique services and
possibly better terms to their customers. However, management of the Bank
believes that the Bank will be able to attract sufficient deposits to enable the
Bank to compete effectively with other area financial institutions.
The Bank is in competition with existing area financial institutions
other than commercial banks and savings and loan associations, including
insurance companies, consumer finance companies, brokerage houses, credit
unions, and other business entities which have recently been invading the
traditional banking markets. Due to the growth of the Sarasota area, it is
anticipated that additional competition will continue from new entrants to the
market.
<PAGE>
Distribution of Assets, Liabilities and Stockholders' Equity; Interest Rates and
Interest Differential
The following is a presentation of the average consolidated balance
sheet of the Company for the years ended December 31, 1996 and 1995. This
presentation includes all major categories of interest-earning assets and
interest-bearing liabilities:
AVERAGE CONSOLIDATED ASSETS
Year Ended Year Ended
December 31, 1996 December 31, 1995
-----------------------------------
Cash and due from banks $ 1,202,356 $ 1,079,206
Taxable securities 10,426,670 11,014,841
Federal funds sold 1,736,199 2,372,470
Net loans 26,486,899 17,582,916
----------- -----------
Total earning assets 39,852,124 32,049,433
Other assets 979,442 804,191
----------- -----------
Total assets $40,831,566 $32,853,624
=========== ===========
AVERAGE CONSOLIDATED LIABILITIES AND STOCKHOLDERS' EQUITY
Year Ended Year Ended
December 31, 1996 December 31, 1995
----------------- -----------------
Non interest-bearing deposits $ 5,191,947 $ 3,916,827
NOW and money market deposits 8,747,707 9,424,664
Savings deposits 767,068 631,151
Time deposits 20,774,574 15,276,254
Repurchase agreements 1,373,413 339,045
Other liabilities 532,921 276,479
----------- -----------
Total liabilities 37,387,630 29,864,420
Stockholders' equity 3,443,936 2,989,204
----------- -----------
Total liabilities and
stockholders' equity $40,831,566 $32,853,624
=========== ===========
2
<PAGE>
The following is a presentation of an analysis of the net interest
earnings of the Company for the periods indicated with respect to each major
category of interest-earning asset and each major category of interest-bearing
liability:
Year Ended December 31, 1996
Average Interests Average Net
Assets Amount Earned Yield Yield
------ ------ ------ ----- -----
Taxable securities $10,426,670 $ 643,639 6.17%
Federal funds sold 1,736,199 92,048 5.30%
Net loans 26,751,973 2,556,651 9.56%
---------- ---------
Total earning assets $38,914,842 $ 3,292,338 8.46% 4.52%
=========== =========== ==== ====
Average Interest Average
Liabilities Amount Paid Rate Paid
- ----------- ------ ---- ---------
NOW and money
market deposits $ 8,747,707 $ 241,433 2.76%
Savings deposits 767,068 16,549 2.16%
Time deposits 20,774,574 1,187,147 5.71%
Repurchase agreements 1,373,413 69,098 5.03%
Other interest-bearing
liabilities 320,883 17,484 5.45%
------- ------
Total interest-bearing
liabilities $31,983,645 $ 1,531,711 4.79%
=========== =========== ====
Year Ended December 31, 1995
----------------------------
Average Interest Average Net
Assets Amount Earned Yield Yield
- ------ ------ ------ ----- -----
Taxable securities $11,014,841 $ 676,729 6.14%
Federal funds sold 2,372,470 138,737 5.85
Net loans 17,582,916 1,713,244(1) 9.74
---------- -----------
Total earning assets
(before allowance) $30,970,227 $ 2,528,710 8.16% 4.28%
=========== =========== ==== ====
Average Interest Average
Liabilities Amount Paid Rate Paid
- ----------- ------ ---- ---------
NOW and money
market deposits $ 9,424,664 $ 263,363 2.79%
Savings deposits 631,151 13,991 2.22
Time deposits 15,276,254 906,024 .93
Repurchase agreements 339,045 17,988 5.31
Other interest-bearing
liabilities 36,926 1,226 3.32
------ -----
Total interest-bearing
liabilities $25,708,040 $ 1,202,592 4.68%
=========== =========== ====
- -----------------------
(1) Interest earned on net loans includes $97,391 in loan fees and loan
service fees for 1996 and $66,549 for 1995.
3
<PAGE>
Rate/Volume Analysis of Net Interest Income
The effect on interest income, interest expense and net interest income
in the periods indicated, of changes in average balance and rate from the
corresponding prior period is shown below. The effect of a change in average
balance has been determined by applying the average rate in the earlier period
to the change in average balance in the later period, as compared with the
earlier period. Changes resulting from average balance/rate variances are
included in changes resulting from rate. The balance of the change in interest
income or expense and net interest income has been attributed to a change in
average rate.
Year Ended December 31, 1996
compared with
Year Ended December 31, 1995
----------------------------
Increase (decrease) due to:
Volume Rate Total
------ ---- -----
Interest earned on:
Taxable securities $ (36,325) $ 3,235 $ (33,090)
Federal funds sold (34,631) (12,058) (46,689)
Net loans 875,561 (32,314) 843,247
------- ------- -------
Total interest income 804,605 (41,137) 763,468
------- ------- -------
Interest paid on:
NOW and money market deposits (18,629) (2,957) (21,586)
Savings deposits 2,921 (363) 2,558
Time deposits 312,657 (31,534) (281,123)
Repurchase agreements 52,004 (894) 51,110
Other interest bearing liabilities 14,999 1,259 16,258
------ ----- ------
Total interest expense 363,952 (34,489) 329,463
------- ------- -------
Change in net
interest income $ 440,653 $ (6,648) $ 434,005
========= ========= =========
Year Ended December 31, 1995
compared with
Year Ended December 31, 1994
----------------------------
Increase (decrease) due to:
Volume Rate Total
------ ---- -----
Interest earned on:
Taxable securities $ 186,190 $ 100,651 $ 286,841
Federal funds sold (20,505) 51,579 31,074
Net loans 480,522 129,928 610,450
------- ------- -------
Total interest income 646,207 282,158 928,365
------- ------- -------
Interest paid on:
NOW and money market deposits (31,961) (26,893) (58,854)
Savings deposits 2,958 (80) 2,878
Time deposits 422,394 73,875 496,269
------- ------ -------
Total interest expense 457,313 100,688 558,001
------- ------- -------
Change in net
interest income $ 188,894 $ 181,470 $ 370,364
========= ========= =========
4
<PAGE>
Deposits
The Bank offers a full range of interest bearing and non-interest
bearing accounts, including commercial and retail checking accounts, money
market accounts, NOW and Super NOW accounts, individual retirement accounts,
regular interest bearing statement savings accounts and certificates of deposit
with fixed and variable rates and a range of maturity date options. The sources
of deposits are residents, businesses and employees of businesses within the
Bank's market area, obtained through the personal solicitation of the Bank's
officers and directors, direct mail solicitation and advertisements published in
the local media. The Bank pays competitive interest rates on time and savings
deposits up to the maximum permitted by law or regulation. In addition, the Bank
offers maintenance free commercial deposit accounts and has implemented a
service charge fee schedule competitive with other financial institutions in the
Bank's market area, covering such matters as maintenance fees on checking
accounts, per item processing fees on checking accounts, returned check charges
and the like. The Bank also offers its customers a courier service for picking
up and delivering deposits to the Bank.
The following table presents, for the periods indicated, the average
amount of and average rate paid on each of the following deposit categories:
Year Ended December 31, 1996 Year Ended December 31, 1995
---------------------------- ----------------------------
Average Average
Deposit Category Average Amount Rate Paid Average Amount Rate Paid
- ---------------- -------------- ------------------------ ---------
Non interest-bearing
demand deposits $ 5,191,947 N/A $ 3,916,827 N/A
NOW and money
market deposits 8,747,707 2.76% 9,424,664 2.79%
Savings deposits 767,068 2.16% 631,151 2.22%
Time deposits 20,774,574 5.71% 15,276,254 5.93%
Repurchase
agreements 1,373,413 5.03% 339,045 5.30%
Other interest-
bearing liabilities 1,694,296 5.11% 375,971 5.11%
5
<PAGE>
The following table indicates amounts outstanding of time certificates
of deposit of $100,000 or more and respective maturities for the year ended
December 31, 1996:
Time
Certificates
of Deposit
----------
3 months or less............. $ 1,214,854
3 to 6 months................ 707,472
6 to 12 months............... 2,847,383
Over 12 months............... 725,780
----------
Total........................ $ 5,495,489
===========
Loan Portfolio
The Bank engages in a full complement of lending activities, including
commercial, consumer/installment and real estate loans. The Bank has a legal
lending limit for unsecured loans of up to $579,150 to any one person. See
"--Supervision and Regulation."
Commercial lending is directed principally towards businesses whose
demands for funds fall within the Bank's legal lending limits and which are
potential deposit customers of the Bank. This category of loans includes loans
made to individual, partnership or corporate borrowers, and obtained for a
variety of business purposes. Particular emphasis is placed on loans to small
and medium-sized businesses. Real estate loans are made for owner occupied and
investment purpose commercial property and for owner occupied residential
property with floating interest rates. Real estate loans for owner occupied
property are considered to be less risky than other types of real estate
lending. Consumer loans are made for all legitimate purposes and consist
primarily of installment loans to individuals for family and household purposes,
including automobile loans to individuals and pre-approved lines of credit. The
Bank makes most of its loans in Sarasota County, although some loans are made in
the contiguous counties. The Bank makes loans to borrowers with good credit,
character and personal reputations and after verification of financial
information supporting the borrowers' ability to repay the loans.
The Bank requires independent appraisals (by appraisers who are approved
by the Board of Directors) to support the value of collateral for all real
estate loans. The real estate borrowers' cash flow projections are analyzed
carefully before loans are made, and annually during the life of the loan, to
support the borrowers' ability to repay the loans. Loan guarantee programs
offered by the Small Business Administration are offered to customers with long
term borrowing requirements. Construction loans are made for owner occupying
borrowers with draws made upon, among other things, proof of lien waivers,
payment to subcontractors, and architects' and contractors' approval.
The Bank's officers thoroughly document the purpose of each loan and the
borrowers' ability to repay before the loans are disbursed. The documentation
for most loans are reviewed by either the President or the Senior Vice President
before disbursement. All unsecured loans in excess of $200,000 and all secured
loans in excess of $300,000 (to any single borrower or group of related
borrowers) require approval of the Bank's Loan Committee (comprised of four
outside directors) as well as concurrence of both the President and the Senior
Vice President before disbursement. Total borrowings by any party or group of
related parties is normally limited to $500,000 which is the Bank's in-house
lending limit. Larger loans are made when participating banks accept the excess
loan balances without recourse against the Bank. The Bank has engaged an
independent company to perform annually a review of its loan portfolio.
While risk of loss in the Bank's loan portfolio is primarily tied to the
credit quality of the various borrowers, risk of loss may also increase due to
factors beyond the Bank's control, such as local, regional and/or national
economic downturns. General conditions in the real estate market may also impact
the relative risk in the Bank's real estate portfolio. Of the Bank's target
areas of lending activities, commercial loans are generally considered to have
greater risk than real estate loans or consumer installment loans.
6
<PAGE>
The following table presents various categories of loans contained in
the Bank's loan portfolio as of December 31, 1996 and 1995 and the total amount
of all loans for such periods:
Type of Loan
- ------------
Amount
------
1996 1995
---- ----
Commercial, financial
and agricultural $ 7,461,934 $ 5,478,592
Real estate-mortgage 20,968,819 14,988,566
Installment and other loans to
individuals 2,970,874 2,095,580
--------- ---------
Subtotal 31,401,627 22,562,738
---------- ----------
Less: deferred loan fees (92,845) (57,702)
Allowance for possible
loan losses (313,939) (225,950)
-------- --------
Total (net of allowance) $ 30,994,843 $ 22,279,086
============ ============
The following is a presentation of an analysis of maturities of loans as
of December 31, 1996:
<TABLE>
<CAPTION>
Due in 1 Due after 1 to Due After
Type of Loan year or less 5 Years 5 Years Total
- ------------ ------------ ------- ------- -----
<S> <C> <C> <C> <C>
Commercial, financial
and agricultural $ 3,030,502 $ 2,867,878 $ 1,563,554 $ 7,461,934
Real estate-mortgage 1,143,507 5,667,992 14,157,320 20,968,819
Installment and other loans
to individuals 1,654,198 1,177,306 139,370 2,970,874
--------- --------- ------- ---------
Total $ 5,828,207 $ 9,713,176 $15,860,244 $31,401,627
=========== =========== =========== ===========
</TABLE>
The following is a presentation of an analysis of sensitivities of
loans to changes in interest rates as of December 31, 1996:
Loans due after 1 year with
predetermined interest rates............................... $ 6,459,310
Loans due after 1 year with
floating interest rates.................................... $ 19,114,110
Accrual of interest is discontinued on a loan when management of the
Bank determines upon consideration of economic and business factors affecting
collection efforts that collection of interest is doubtful. For the year ended
December 31, 1996, the Company had one loan in the amount of $6,879 accounted
for on a nonaccrual basis and no loans were contractually past due 90 days or
more as to principal or interest payments. For the year ended December 31, 1995,
the Company had two loans aggregating $40,500 accounted for on a nonaccrual
basis and no loans were contractually past due 90 days or more as to principal
or interest payments.
At December 31, 1996, there were no loans classified for regulatory
purposes as doubtful, substandard or special mention that have not been
disclosed above which (i) represent or result from trends or uncertainties which
management reasonably expects will materially impact future operating results,
liquidity or capital resources, or (ii) represent material credits about which
management is aware of any information which causes management to have serious
doubts as to the ability of such borrowers to comply with the loan repayment
terms.
7
<PAGE>
Summary of Loan Loss Experience
An analysis of the Bank's loss experience is furnished in the following
table for the periods indicated.
Analysis of the Allowance for Loan Losses
Year Ended Year Ended
December 31, 1996 December 31, 1995
----------------- -----------------
Balance at beginning
of period $ 225,950 $ 188,930
--------- ---------
Charge-offs
Commercial, financial
and agricultural (11,472) (32,640)
Installment and other
loans to individuals (3,942) --
Recoveries
Commercial, financial
and agricultural 5,577 1,867
Installment and other
loans to individuals 574 11,164
Net charge-offs (9,262) (19,609)
Additions charged
to operations 97,250 56,629
------ ------
Balance at end of period $ 313,938 $ 225,950
========= =========
Ratio of net charge-offs
during the period to
average loans out-
standing during the
period .03% .11%
At December 31, 1996, the allowance was not allocated among the various
categories of loans in the Bank's loan portfolio. The allowance is determined by
the following factors: internally assigned loan grade, specific allocations,
economic conditions, off balance sheet items (unfunded loans), concentrations of
credit and external loan review.
Loan Loss Reserve
In considering the adequacy of the Company's allowance for possible
loan losses, management has focused on the fact that as of December 31, 1996,
23.8% of outstanding loans are in the category of commercial loans. Commercial
loans are generally considered by management as having greater risk than other
categories of loans in the Company's loan portfolio. However, over 93.1% of
these commercial loans at December 31, 1996 were made on a secured basis.
Management believes that the secured condition of the preponderant portion of
its commercial loan portfolio greatly reduces any risk of loss inherently
present in commercial loans.
The Company's consumer loan portfolio is also well secured. At December
31, 1996 the majority of the Company's consumer loans were secured by collateral
primarily consisting of automobiles, boats and other personal property.
Management believes that these loans involve less risk than other categories of
loans.
8
<PAGE>
Real estate mortgage loans constitute 66.8% of outstanding loans.
Approximately $6 million or 28.2% of this category represents residential real
estate mortgages. The remaining portion of this category consists of commercial
real estate loans. Risk of loss for these loans is generally higher than
residential loans.
The Company's Board of Directors monitors the loan portfolio quarterly
to enable it to evaluate the adequacy of the allowance for loan losses. The
loans are rated and the reserve established based on the assigned rating. The
provision for loan losses charged to operating expenses is based on this
established reserve. Factors considered by the Board in rating the loans include
delinquent loans, underlying collateral value, payment history and local and
general economic conditions affecting collectibility.
Investments
As of December 31, 1996, investment securities, excluding Federal
Funds, comprised approximately 22.7% of the Bank's assets and loans comprised
approximately 62.6% of the Bank's assets. The Bank invests primarily in
obligations of the United States or obligations guaranteed as to principal and
interest by the United States. In addition, the Bank enters into Federal Funds
transactions with its principal correspondent banks, and acts as a net seller of
such funds. The sale of Federal Funds amounts to a short-term loan from the Bank
to another bank.
The following table presents, at the dates indicated, the book value of
the Bank's investments:
Investment Category
December 31,
---------------------
1996 1995
---- ----
Obligations of U.S. treasury
and other U.S. agencies $11,169,507 $10,537,380
The following table indicates for the year ended December 31, 1996 the
respective maturities and weighted average yields of securities:
<TABLE>
<CAPTION>
Investment Weighted Average
Category Amount Yield(1)
-------- ------ --------
Obligations of U.S. treasury
and other U.S. agencies:
0 - 1 Year.......................................... $ 1,995,719 6.57%
Over 1 through 5 years.............................. 9,173,788 6.47%
-----------
<S> <C> <C>
Total............................................... $ 11,169,507 6.49%
===========
- --------------------
</TABLE>
(1) The Company has not invested in any tax exempt obligations. All
securities have been designated as Available For Sale Investments by
the Bank's Board of Directors.
Return on Equity and Assets
Returns on average consolidated assets and average consolidated equity
for the periods indicated are as follows:
December 31,
------------
1996 1995
---- ----
Return (loss) on average assets 1.40% 1.04%
Return (loss) on average equity 14.85% 11.44%
Average equity to average
Assets ratio 7.80% 9.10%
Dividend payout ratio -- --
9
<PAGE>
Asset/Liability Management
It is the objective of the Bank to manage assets and liabilities to
provide a satisfactory, consistent level of profitability within the framework
of established cash, loan, investment, borrowing and capital policies. Certain
of the officers of the Bank will be responsible for monitoring policies and
procedures that are designed to ensure acceptable composition of the
asset/liability mix, stability and leverage of all sources of funds while
adhering to prudent banking practices. It is the overall philosophy of
management to support asset growth primarily through growth of core deposits,
which include deposits of all categories made by individuals, partnerships and
corporations. Management of the Bank seeks to invest the largest portion of the
Bank's assets in commercial, consumer and real estate loans.
The Bank's asset/liability mix is monitored on a daily basis with a
monthly report reflecting interest-sensitive assets and interest-sensitive
liabilities and maturing assets and maturing liabilities being prepared and
presented to the Bank's Board of Directors. The objective of this policy is to
control interest-sensitive assets and liabilities so as to minimize the impact
of substantial movements in interest rates on the Bank's earnings.
Management is not aware of any known events or uncertainties that will
have or are reasonably likely to have a material effect on the Bank's liquidity,
capital resources or results of operations. Management is not aware of any
current recommendations by the regulatory authorities which if they were to be
implemented would have a material effect on the Bank's liquidity, capital
resources or results of operations.
Correspondent Banking
Correspondent banking involves the providing of services by one bank to
another bank which cannot provide that service for itself from an economic or
practical standpoint. The Bank is required to purchase correspondent services
offered by larger banks, including check collections, purchase of Federal Funds,
security safekeeping, investment services, coin and currency supplies, overline
and liquidity loan participations and sales of loans to or participations with
correspondent banks.
The Bank occasionally sells loan participations to correspondent banks
with respect to loans which exceed the Bank's lending limit. Management of the
Bank has established correspondent relationships with National Bank of Commerce,
Barnett Bank, Independent Banker's Bank and First Tennessee Bank, N.A. As
compensation for services provided by a correspondent, the Bank may maintain
certain balances with such correspondents in non-interest bearing accounts. At
December 31, 1996, the Bank had $3,448,874 in participations sold, and
$1,899,096 in participations purchased.
Data Processing
The Bank has a data processing servicing agreement with M&I Data
Services, Inc. This servicing agreement provides for the Bank to receive a full
range of data processing services, including an automated general ledger,
deposit accounting, commercial, real estate and installment lending data
processing, payroll, central information file and ATM processing.
Facilities
The Bank operates out of an office suite on the ground floor of One
Sarasota Tower, a twelve story glass-faced building at the intersection of U.S.
Highway 41 (Tamiami Trail) and Gulfstream Avenue in downtown Sarasota, Florida.
The facility includes four teller stations, four executive offices, a vault, a
night depository, a bookkeeping/operations room and a board room. The Bank also
operates a two-lane drive through facility on property which is contiguous to
the office space.
10
<PAGE>
Employees
The Bank presently employs 15 persons on a full-time basis, including
seven officers. The Bank will hire additional persons as needed, including
additional tellers and financial service representatives.
Monetary Policies
The results of operations of the Bank will be affected by credit
policies of monetary authorities, particularly the Federal Reserve Board. The
instruments of monetary policy employed by the Federal Reserve Board include
open market operations in U.S. Government securities, changes in the discount
rate on member bank borrowings, changes in reserve requirements against member
bank deposits and limitations on interest rates which member banks may pay on
time and savings deposits. In view of changing conditions in the national
economy and in the money markets, as well as the effect of action by monetary
and fiscal authorities, including the Federal Reserve Board, no prediction can
be made as to possible future changes in interest rates, deposit levels, loan
demand or the business and earnings of the Bank.
Supervision and Regulation
The Company and the Bank operate in a highly regulated environment, and
their business activities are governed by statute, regulation and administrative
policies. The business activities of the Company and the Bank are closely
supervised by a number of federal regulatory agencies, including the Federal
Reserve Board, the Florida Department of Banking and Finance (the "Florida
Department") and the FDIC. In addition, the Company is subject to certain
periodic reporting and disclosure requirements of the Securities and Exchange
Commission.
The Company is regulated by the Federal Reserve Board under the federal
Bank Holding Company Act of 1956 (the "Act"), which requires every bank holding
company to obtain the prior approval of the Federal Reserve Board before
acquiring more than 5% of the voting shares of any bank or all or substantially
all of the assets of a bank, and before merging or consolidating with another
bank holding company. The Federal Reserve Board (pursuant to regulation and
published policy statements) has maintained that a bank holding company must
serve as a source of financial strength to its subsidiary banks. In adhering to
the Federal Reserve Board policy the Company may be required to provide
financial support to a subsidiary bank at a time when, absent such Federal
Reserve Board policy, the Company may not deem it advisable to provide such
assistance.
Under the Riegle-Neal Interstate Bank and Branching Efficiency Act of
1994, the restrictions on interstate acquisitions of banks by bank holding
companies were repealed on September 29, 1995, such that the Company and any
other bank holding company located in Florida is able to acquire a bank located
in any other state, and a bank holding company located outside Florida can
acquire any Florida-based bank, in either case subject to certain deposit
percentage and other restrictions. The legislation also provides that, unless an
individual state elects beforehand either (i) to accelerate the effective date
or (ii) to prohibit out-of-state banks from operating interstate branches within
its territory, on or after June 1, 1997, adequately capitalized and managed bank
holding companies will be able to consolidate their multistate bank operations
into a single bank subsidiary and to branch interstate through acquisitions. De
novo branching by an out-of-state bank would be permitted only if it is
expressly permitted by the laws of the host state. The authority of a bank to
establish and operate branches within a state will continue to be subject to
applicable state branching laws.
A bank holding company is generally prohibited from acquiring control of
any company which is not a bank and from engaging in any business other than the
business of banking or managing and controlling banks. However, there are
certain activities which have been identified by the Federal Reserve Board to be
so closely related to banking as to be a proper incident thereto and thus
permissible for bank holding companies, including the following activities:
acting as investment or financial advisor to subsidiaries and certain outside
companies; leasing personal and real property or acting as a broker with respect
thereto; providing management consulting advice to nonaffiliated banks and
nonbank depository institutions; providing consumer financial counseling
services; operating collection agencies and credit bureaus; providing foreign
exchange advisory and transactional services; acting as a futures commission
merchant; providing data processing and data transmission services; acting as an
insurance agent or underwriter with respect to limited types of insurance;
11
<PAGE>
performing real estate appraisals; arranging commercial real estate equity
financing; providing securities brokerage services; providing certain types of
courier services; and underwriting and dealing in obligations of the United
States, the states and their political subdivisions. In determining whether an
activity is so closely related to banking as to be permissible for bank holding
companies, the Federal Reserve Board is required to consider whether the
performance of such activities by a bank holding company or its subsidiaries can
reasonably be expected to produce such benefits to the public as greater
convenience, increased competition or gains in efficiency that outweigh such
possible adverse effects as undue concentration of resources, decreased and
unfair competition, conflicts of interest and unsound banking practices.
Generally, bank holding companies are required to obtain prior approval of the
Federal Reserve Board to engage in any new activity not previously approved by
the Federal Reserve Board.
As a state-chartered bank, the Bank is subject to comprehensive
regulation, examination and supervision by the Florida Department and the FDIC,
and to other laws and regulations applicable to banks. Such regulations include
limitations on loans to a single borrower and to its directors, officers and
employees; restrictions on the opening and closing of branch offices; the
maintenance of required capital and liquidity ratios; the granting of credit
under equal and fair conditions; and the disclosure of the cost and terms of
such credit. The Bank will be examined periodically by both the Florida
Department and the FDIC, to each of whom it will submit regular periodic reports
regarding its financial condition and other matters. Both the Florida Department
and the FDIC have a broad range of powers to enforce regulations under their
respective jurisdiction, and to take discretionary actions determined to be for
the protection of the safety and soundness of the Bank, including the
institution of cease and desist orders and the removal of bank affiliated
parties including employees and controlling shareholders.
Florida law contains provisions that limit interest rates that may be
charged by banks and other lenders on certain types of loans. Numerous
exceptions exist to the general interest limitations imposed by Florida law. The
relative importance of these interest limitation laws to the financial
operations of the Bank will vary from time to time, depending upon a number of
factors, including conditions in the money markets, the cost and availability of
funds and prevailing interest rates.
Florida banks are permitted by statute to branch statewide. Such branch
banking, however, is subject to prior approval by the Florida Department and the
FDIC. Any approval by the Florida Department and the FDIC would take into
consideration several factors, including the Bank's level of capital, the
prospects and economics of the proposed branch office, and other considerations
deemed relevant by the Florida Department and the FDIC for purposes of
determining whether approval should be granted to open a branch office.
Pursuant to Florida law, no person or group of persons may, directly or
indirectly or acting by or through one or more persons, purchase or acquire a
controlling interest in any bank which would result in the change in control of
that bank unless the Florida Department first shall have approved such proposed
acquisition. A person or group will be deemed to have acquired "control" of a
bank if the person or group directly or indirectly or acting through one or more
other persons (i) owns, controls or has power to vote 25% or more of any class
of voting securities of the bank, (ii) controls in any manner the election of a
majority of the directors of the bank, (iii) owns, controls or has power to vote
10% or more of any class of voting securities of the bank and exercises a
controlling influence over the management or policies of the bank or (iv) if the
Florida Department determines that such person exercises a controlling influence
over the management or policies of the bank.
Both the Company and the Bank are subject to regulatory capital
requirements imposed by the Federal Reserve Board and the FDIC. In early 1989,
both the Federal Reserve Board and the FDIC issued new risk-based capital
guidelines for bank holding companies and banks which make regulatory capital
requirements more sensitive to differences in risk profiles of various banking
organizations. The capital adequacy guidelines issued by the Federal Reserve
Board are applied to bank holding companies on a consolidated basis with the
banks owned by the holding company. The FDIC's risk capital guidelines apply
directly to state-chartered banks which are not members of the Federal Reserve
System and whose deposits are insured by the FDIC, regardless of whether they
are a subsidiary of a bank holding company. Both agencies' requirements (which
are substantially similar) provide that banking organizations must have capital
equivalent to 8% of weighted risk assets. The risk weights assigned to assets
are based primarily on credit risks. Depending upon the riskiness of a
particular asset, it is assigned to a risk category. For example, securities
with an unconditional guarantee by the United States government are assigned to
the lowest risk category. A risk weight of 50% is assigned to loans secured by
12
<PAGE>
owner-occupied one to four family residential mortgages, provided that certain
conditions are met. The aggregate amount of assets assigned to each risk
category is multiplied by the risk weight assigned to that category to determine
the weighted values, which are added together to determine total risk-weighted
assets. At December 31, 1996, the Company's total risk-based capital and
tier-one ratios were 12.9% and 11.9%, respectively.
The Federal Reserve Board and the FDIC have adopted minimum capital
leverage ratios to be used in tandem with the risk-based guidelines in assessing
the overall capital adequacy of banks and bank holding companies. Under the
Federal Reserve Board's rule, banking institutions are required to maintain a
ratio of 3% "Tier 1" capital to total assets (net of goodwill). Tier 1 capital
includes common stockholders equity, noncumulative perpetual preferred stock and
minority interests in the equity accounts of consolidated subsidiaries.
Both the risk-based capital guidelines and the leverage ratio are
minimum requirements, applicable only to top-rated banking institutions.
Institutions operating at or near these levels are expected to have
well-diversified risk, high asset quality, high liquidity, good earnings and in
general, have to be considered strong banking organizations, rated composite 1
under the CAMEL rating system for banks. Institutions with lower ratings and
institutions with high levels of risk or experiencing or anticipating
significant growth would be expected to maintain ratios 100 to 200 basis points
above the stated minimums.
The FDIC rule also establishes a minimum leverage ratio of 3%, but
provides that FDIC-regulated banks that do not receive a CAMEL-1 rating under
the Uniform Financial Institutions Rating System, or banks which are
anticipating or experiencing significant growth, must maintain a leverage ratio
of at least 4%. In addition, the FDIC rule specifies that institutions operating
with Tier 1 capital of 2% of total assets or less would be determined to be
operating in an unsafe and unsound manner and would be subject to enforcement
action by the FDIC.
The Office of the Comptroller of the Currency, the Federal Reserve Board
and the FDIC recently adopted final regulations revising their risk-based
capital guidelines to further ensure that the guidelines take adequate account
of interest rate risk. Interest rate risk is the adverse effect that changes in
market interest rates may have on a bank's financial condition and is inherent
to the business of banking. Under the new regulations, when evaluating a bank's
capital adequacy, the agencies' capital standards now explicitly include a
bank's exposure to declines in the economic value of its capital due to changes
in interest rates. The exposure of a bank's economic value generally represents
the change in the present value of its assets, less the change in the value of
its liabilities, plus the change in the value of its interest rate off-balance
sheet contracts. Concurrently, the agencies issued a joint policy statement to
bankers, effective June 26, 1996, to provide guidance on sound practices for
managing interest rate risk. In the policy statement, the agencies emphasize the
necessity of adequate oversight by a bank's Board of Directors and senior
management and of a comprehensive risk management process. The policy statement
also describes the critical factors affecting the agencies' evaluations of a
bank's interest rate risk when making a determination of capital adequacy. The
agencies' risk assessment approach used to evaluate a bank's capital adequacy
for interest rate risk relies on a combination of quantitative and qualitative
factors. Banks that are found to have high levels of exposure and/or weak
management practices will be directed by the agencies to take corrective action.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (the
"Act"), enacted on December 19, 1991, provides for a number of reforms relating
to the safety and soundness of the deposit insurance system, supervision of
domestic and foreign depository institutions and improvement of accounting
standards. One aspect of the Act involves the development of a regulatory
monitoring system requiring prompt action on the part of banking regulators with
regard to certain classes of undercapitalized institutions. While the Act does
not change any of the minimum capital requirements, it directs each of the
federal banking agencies to issue regulations putting the monitoring plan into
effect. The Act creates five "capital categories" ("well capitalized,"
"adequately capitalized," "undercapitalized," "significantly undercapitalized"
and "critically undercapitalized") which are defined in the Act and which will
be used to determine the severity of corrective action the appropriate regulator
may take in the event an institution reaches a given level of
undercapitalization. For example, an institution which becomes
"undercapitalized" must submit a capital restoration plan to the appropriate
regulator outlining the steps it will take to become adequately capitalized.
Upon approving the plan, the regulator will monitor the institution's
compliance. Before a capital restoration plan will be approved, any entity
controlling a bank (i.e., holding companies) must guarantee compliance with the
plan until the institution has been adequately capitalized for four consecutive
calendar quarters. The liability of the holding company is limited to the lesser
13
<PAGE>
of five percent of the institution's total assets or the amount which is
necessary to bring the institution into compliance with all capital standards.
In addition, "undercapitalized" institutions will be restricted from paying
management fees, dividends and other capital distributions, will be subject to
certain asset growth restrictions and will be required to obtain prior approval
from the appropriate regulator to open new branches or expand into new lines of
business.
As an institution drops to lower capital levels, the extent of action to
be taken by the appropriate regulator increases, restricting the types of
transactions in which the institution may engage and ultimately providing for
the appointment of a receiver for certain institutions deemed to be critically
undercapitalized.
The Act also provides that banks have to meet new safety and soundness
standards. In order to comply with the Act, the Federal Reserve Board and the
FDIC have adopted regulations defining operational and managerial standards
relating to internal controls, loan documentation, credit underwriting, interest
rate exposure, asset growth and compensation, fees and benefits.
The capital standards and the safety and soundness standards which the
Act seeks to implement are designed to bolster and protect the deposit insurance
fund. In response to the directive issued under the Act, the regulators have
adopted regulations which, among other things, prescribe the capital thresholds
for each of the five capital categories established by the Act. The following
table reflects these capital thresholds:
Total Risk - Tier 1 Risk - Tier 1
Based Capital Based Capital Leverage
Ratio Ratio Ratio
------------- ------------- --------
Well capitalized (1) 10% 6% 5%
Adequately Capitalized (1) 8% 4% 4%(2)
Undercapitalized (3) less than 8% less than 4% less than 4%(4)
Significantly Undercapitalized (3) less than 6% less than 3% less than 3%
less than
Critically Undercapitalized - - or equal to 2%(5)
- ---------------------------
(1) An institution must meet all three minimums.
(2) 3% for composite 1-rated institutions, subject to appropriate federal
banking agency guidelines.
(3) An institution falls into this category if it is below the specified
capital level for any of the three capital measures.
(4) Less than 3% for composite-1 rated institutions, subject to appropriate
federal banking agency and guidelines.
(5) Ratio of tangible equity to total assets.
The legislature of the State of Florida enacted a regional reciprocal
interstate banking statute which authorized bank holding companies whose
operations are principally conducted in certain southeastern states to acquire
banks and bank holding companies located in Florida under certain conditions.
Such southeastern states included the States of Alabama, Arkansas, Georgia,
Louisiana, Maryland, Mississippi, North Carolina, South Carolina, Tennessee,
Virginia, West Virginia and the District of Columbia. Such legislation has had
the effect of increasing competition among financial institutions in the Bank's
market area and in the State of Florida generally. The legislature has recently
amended this regional reciprocal interstate banking statute to eliminate its
regional nature. The new statute, which became effective on May 1, 1995, allows
bank holding companies located throughout the United States to acquire banks and
bank holding companies located in Florida under certain conditions.
As a bank holding company, the Company is required to file with the
Federal Reserve Board an annual report of its operations at the end of each
fiscal year and such additional information as the Federal Reserve Board may
require pursuant to the Act. The Federal Reserve Board may also make
examinations of the Company and each of its subsidiaries.
The scope of regulation and permissible activities of the Company and
the Bank is subject to change by future federal and state legislation.
14
<PAGE>
Item 2. Description of Property.
- --------------------------------
On June 3, 1991, the Company entered into a lease for two office suites
on the ground floor of One Sarasota Tower, a twelve story glass-faced building
at the intersection of U.S. Highway 41 (Tamiami Trail) and Gulfstream Avenue in
downtown Sarasota, Florida. The two suites contain an aggregate of 9,300 square
feet of useable space. The Company is presently using all of one suite and 1,100
square feet of the second for banking operations. The remainder of the second
suite is being subleased by the Company and will be used to accommodate future
expansion of the Bank's operations as needed.
The lease agreement provides for a term of 10 years commencing on
December 31, 1991, with options to extend the lease for two additional periods
of five years each. The effective annual rent over the term of the lease is
approximately $177,800. The facility includes four teller stations, three
executive offices, a vault, a night depository, a bookkeeping/operations room
and a board room. The Company is subleasing the facility to the Bank at a rate
which will include reimbursement to the Company for payment of rent, taxes,
insurance, repairs and maintenance of the property.
On November 30, 1993, the Company entered into a ground lease on
contiguous property on which it has constructed a two-lane drive through
facility. The lease term coincides with that of the current banking facility
with an effective annual rent of approximately $23,600.
Item 3. Legal Proceedings.
- --------------------------
There are no material pending legal proceedings to which the Company or
the Bank is a party or of which any of their properties are subject; nor are
there material proceedings known to the Company to be contemplated by any
governmental authority; nor are there material proceedings known to the Company,
pending or contemplated, in which any director, officer or affiliate or any
principal security holder of the Company, or any associate of any of the
foregoing is a party or has an interest adverse to the Company or the Bank.
Item 4. Submission of Matters to a Vote of Security Holders.
- ------------------------------------------------------------
No matter was submitted during the fourth quarter ended December 31,
1996 to a vote of security holders of the Company.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
- -----------------------------------------------------------------
A. Market Information
During the period covered by this report and to date, there has
been no established public trading market for the Company's Common Stock.
B. Holders of Common Stock
As of March 1, 1997, the number of holders of record of the
Company's Common Stock was 363.
C. Dividends
To date, the Company has not paid any cash dividends on its
Common Stock. It is the policy of the Board of Directors of the Company to
reinvest earnings for such period of time as is necessary to ensure the success
of the operations of the Company and of the Bank. There are no current plans to
15
<PAGE>
initiate payment of cash dividends, and future dividend policy will depend on
the Bank's earnings, capital requirements, financial condition and other factors
considered relevant by the Board of Directors of the Company.
Dividends are payable with respect to the Common Stock of the Bank only
when and if declared by the Bank's Board of Directors. Under Florida law
applicable to banks and subject to certain limitations, after charging off bad
debts, depreciation and other worthless assets, if any, and making provisions
for reasonably anticipated future losses on loans and other assets, the board of
directors of a bank may declare a dividend of so much of the bank's aggregate
net profits for the current year combined with its retained net profits for the
preceding two years as the board shall deem to be appropriate and, with the
approval of the Florida Department, may declare a dividend from retained net
profits which accrued prior to the preceding two years. Before declaring a
dividend, a bank must carry 20% of its net profits for any preceding period as
is covered by the dividend to its surplus fund, until the surplus fund is at
least equal to the amount of its common stock then issued and outstanding. No
dividends may be paid at any time when a bank's net income from the current year
combined with the retained net income from the preceding two years is a loss or
which would cause the capital accounts of the bank to fall below the minimum
amount required by law, regulation, order, or any written agreement with the
Florida Department or a state or federal regulatory agency.
Item 6. Management's Discussion and Analysis or Plan of Operations.
- -------------------------------------------------------------------
Certain statements contained in this filing are "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended and Section 21E of the Securities Exchange Act of 1934, as amended, such
as statements relating to financial results and plans for future business
development activities, and are thus prospective. Such forward-looking
statements are subject to risks, uncertainties and other factors which could
cause actual results to differ materially from future results expressed or
implied by such forward-looking statements. Potential risks and uncertainties
include, but are not limited to, economic conditions, competition and other
uncertainties detailed from time to time in the Company's Securities and
Exchange Commission filings.
Overview
The Company was incorporated under the laws of the State of Florida on
December 28, 1990 for the primary purpose of organizing the Bank and purchasing
100% of the outstanding capital stock of the Bank. The following discussion is
intended to assist in understanding the financial condition and results of
operation of the Company and should be read in conjunction with the Consolidated
Financial Statements of the Company included herein.
Net income for the year ended December 31, 1996 was $550,127, compared
to $315,473 in 1995. Net income per common share was $1.17 in 1996 compared to
$.67 in 1995. The increase in 1996 net income resulted principally from
increases in the volume of earning assets, primarily loans, which increased net
interest income 32.7%, or $434,005 over 1995.
Total assets were $49,475,203 at December 31, 1996, 36.0% over total
assets of $36,367,173 at December 31, 1995. Average assets for 1996 were
$40,831,566 as compared to average assets of $32,853,624 in 1995. This 24.3%
increase in average assets was the result of a 25.3% increase in average
deposits over the prior year.
Results of Operations and Financial Condition
Fiscal 1996 Compared to Fiscal 1995
- -----------------------------------
The Company experienced continued asset, loan and deposit growth during
1996. Total assets increased 36.0% to $49,475,203 at December 31, 1996 from
$36,367,173 at December 31, 1995. This increase is primarily attributable to an
increase in loans of approximately $8.7 million during the year. Net total loans
at December 31, 1996 were $31.0 million, compared to $22.3 million at December
16
<PAGE>
31, 1995. Securities available for sale accounted for 5.4% of the asset growth
as they increased to $11.2 million at December 31, 1996 from $10.6 million at
December 31, 1995.
The Company's net income grew proportionately with the asset growth
during 1996. Net income increased 74.4% to $550,127 or $1.17 per share of Common
Stock at December 31, 1996 as compared to net income of $315,473 or $.67 per
share of Common Stock at December 31, 1995. The increases in net income are
primarily attributable to a 49.2% increase in interest and fees on loans.
Interest and fees earned on loans were $2.6 million at December 31, 1996
compared to $1.7 million at December 31, 1995.
Net interest income after provision for loan losses increased $393,384
or 31.0% to $1,664,517 at December 31, 1996 compared to $1,271,133 for the same
period of 1995. The increases in net interest income resulted primarily from an
increase in loan volume and a corresponding increase in interest and fees on
loans. The cost of deposits averaged 4.1% for the year 1996 compared to 4.0% for
the year 1995. The net interest margin was 4.36% as of December 31, 1996 on
average earning assets of $40 million compared to a net interest market of 4.1%
on average earning assets of $31.0 million as of December 31, 1995. This
increase in net interest margin is reflective of growth in earning assets and
repricing of floating rate assets quicker than repricing of interest bearing
liability accounts.
Non-interest expense increased $104,242 or 8.2% to $1,369,000 at
December 31, 1996 as compared to $1,264,758 at December 31, 1995. This increase
is primarily the result of increased compensation expenses and increased
advertising and marketing expenses.
Non-interest income increased $18,412 or 11.6% to $176,710 at December
31, 1996 compared to $158,298 at December 31, 1995. This increase is
attributable to increased income for fees on depository accounts. Service fees
increased $44,893 or 45.2% to $144,317 at December 31, 1996 compared to $99,424
at December 31, 1995. While the Bank does not charge maintenance fees for its
commercial accounts, a significant increase was observed in insufficient funds
activity.
The allowance for loan losses represents management's estimate of an
amount adequate to provide for potential losses inherent in the loan portfolio.
In its continuing evaluation of the allowance and its adequacy, management
considers the Company's loan loss experience, an internally assigned loan grade,
current and anticipated economic conditions, off-balance sheet items,
concentrations of credit and other factors which affect the allowance for
potential credit losses. While it is the Company's policy to charge-off, in the
current period, the loans in which a loss is considered probable, there are
additional risks for future losses which cannot be quantified precisely or
attributed to particular loans or classes of loans. Because these risks include
the state of the economy, management's judgment as to the adequacy of the
allowance is necessarily approximate and imprecise. The expense for the
allowance for loan losses increased $40,621 or 71.7% to $97,250 at December 31,
1996 compared to $56,629 at December 31, 1995. The increased allowance for loan
losses in 1996 was due to the increase in total loans outstanding during fiscal
1996. Net charge-offs for 1996 were $9,262 or .03% of average loans outstanding
for 1996 compared to $19,609 or .11% of average loans outstanding for 1995. The
ratio of non-performing loans (including loans 90 days or more past due) to
total outstanding loans was .02% as of December 31, 1996. At year ended December
31, 1995, non-performing loans were .20% of loans outstanding.
Fiscal 1995 Compared to Fiscal 1994
- -----------------------------------
Total assets were $36,367,173 at December 31, 1995, 30.7% higher than
total assets of $27,821,397 at December 31, 1994. The increase was recognized
primarily in net loans. Net total loans at December 31, 1995 were $22.3 million,
compared to $15.8 million in net total loans at December 31, 1994. Real estate
loans continue to comprise the majority of the loan portfolio.
Net interest income rose from $957,398 in 1994 to $1,327,762 at December
31, 1995, an increase of 38.7%. This increase in net interest income can be
attributed to a portfolio growth of $6.4 million, primarily in residential and
commercial real estate. The cost of deposits averaged 3.3% for 1994 compared to
17
<PAGE>
4.0% for 1995. The net interest margin for fiscal 1995 was 4.1% on average
earning assets of $30,970,227. For fiscal 1994, the net interest margin was 3.1%
on average earning assets of $21,322,128. This increase in net interest margin
is reflective of growth in earning assets and repricing of floating rate assets
quicker than repricing of interest bearing liability accounts.
The allowance for loan losses represents management's estimate of an
amount adequate to provide for potential losses inherent in the loan portfolio.
In its continuing evaluation of the allowance and its adequacy, management
considers the Company's loan loss experience, an internally assigned loan grade,
current and anticipated economic conditions, off-balance sheet items,
concentrations of credit and other factors which affect the allowance for
potential credit losses. While it is the Company's policy to charge-off, in the
current period, the loans in which a loss is considered probable, there are
additional risks for future losses which cannot be quantified precisely or
attributed to particular loans or classes of loans. Because these risks include
the state of the economy, management's judgment as to the adequacy of the
allowance is necessarily approximate and imprecise. The provision for loan
losses charged to operations in 1995 was $56,629, compared to the provision of
$92,360 recorded at the end of 1994. Net charge-offs were $19,609 or less than
.11% of average loans outstanding during 1995. The increased provision in 1995
resulted from the increase in total loans outstanding during 1995.
Non-interest income was $158,298 for the year ended December 31, 1995
compared to $263,041 for the period ending December 31, 1994. This decrease is
primarily attributable to a $43,647 net decrease in rental income.
Non-interest expense decreased 21.0% or $264,021 to $1,264,758 in 1995
from $1,528,779 in 1994. This decrease is primarily attributable to decreased
salary expenses associated with Bank's closing of the residential mortgage
department and decreased advertising and professional fees. The closing of the
mortgage department resulted in a decrease in salary expense of $11,500 and
$80,100 previously paid to one salaried employee and three commissioned
individuals, respectively.
In 1995, the FDIC re-evaluated deposit fee assessments which resulted in
a decrease in FDIC fees of $8,200 over 1994.
The net interest margin decreased from 4.49% in 1994 to 4.09% in 1995.
This change is primarily attributable to decreasing rates in higher yielding
assets in the loan portfolio and an increase in higher yielding deposit
products.
Liquidity and Interest Rate Sensitivity
The Company maintains its liquidity through the management of its assets
and liabilities. Liquidity management involves meeting the funds flow
requirements of customers who may withdraw funds on deposit or may need to
obtain funds to meet their credit needs. Banks in general must maintain adequate
cash balances to meet daily cash flow requirements as well as satisfy reserves
required by applicable regulations. The cash balances held are one source of
liquidity. Other sources are provided by the investment portfolio, federal funds
sold, interest-bearing deposits in financial institutions, loan payments and the
Company's ability to borrow funds as well as issue new capital.
At December 31, 1996, the Company continued to exhibit a high degree of
liquidity. Primary liquidity rests in federal funds sold, which can be converted
to cash in the same day. Federal funds sold and cash and due from banks
aggregated $6.2 million or 12.5% of assets at December 31, 1996 compared to $2.4
million or 6.6% of total assets at the end of 1995. Current securities held in
the Company's investment portfolio (with a market value of approximately $11.2
million) are classified as "Available For Sale." Future investments may also be
designated as "Available for Sale." Secondary liquidity rests in established
secured federal funds purchased from a correspondent bank. Commitments to extend
credit totaled $4,206,721 at December 31, 1996 compared to $2,534,000 at
December 31, 1995. Management intends to fund these commitments primarily from
deposit growth and federal funds balances. With a loan to deposit ratio of
70.57%, cash and due from banks of $2.5 million and federal funds sold of $3.7
million, management does not anticipate any events which would require liquidity
beyond that which is available through deposit growth or its investment
portfolio.
18
<PAGE>
Management monitors the Company's asset and liability positions in order
to maintain a balance between maturing assets and maturing liabilities along
with rate sensitive assets and rate sensitive liabilities to maintain sufficient
liquid assets to meet expected liquidity needs. Management believes that the
Company's liquidity is satisfactory at December 31, 1996. Except as set forth
above, there are no trends, demands, commitments, events or uncertainties that
will result in or are reasonably likely to result in the Company's liquidity
increasing or decreasing in any material way. The Company is not aware of any
current recommendations by the regulatory authorities which if they were to be
implemented would have a material effect on the Company's liquidity, capital
resources, or results of operations.
The following is an analysis of rate sensitive assets and liabilities as
of December 31, 1996 (in thousands):
<TABLE>
<CAPTION>
5 yrs.
0-3 mos. 3-12 mos. 1-5 yrs. or more Total
-------- --------- -------- ------- -----
<S> <C> <C> <C> <C> <C>
Taxable securities $ 999 $ 5,533 $ 3,160 $ 1,520 $ 11,212
Federal funds sold 3,718 0 0 0 3,718
Loans 7,870 6,109 13,714 3,702 31,395
----- ----- ------ ----- ------
Total rate sensitive assets 12,587 11,642 16,874 5,222 46,325
------ ------ ------ ----- ------
NOW and money
market deposits 10,510 0 0 0 10,510
Savings deposits 952 0 0 0 952
Time deposits 4,537 20,058 2,138 0 26,733
----- ------ ----- ----- ------
Total rate sensitive
liabilities 15,999 20,058 2,138 0 38,195
------ ------ ----- ----- ------
Excess (deficiency)
of rate sensitive
assets less rate sensitive
liabilities $ (3,412) $ (8,416) $ 14,736 $ 5,222 $ 8,130
======== ======== ======== ======== ========
Ratio of rate sensitive
assets to rate sensitive
liabilities (1.27) (1.72) .13 -- .82
Cumulative gap $ (3,412) $(11,828) $ 2,908 $ 8,130 --
</TABLE>
As indicated in the above table, the positive gap in the 0-3 and 3-12 month
categories between rate sensitive assets and rate sensitive liabilities would
allow the Company to reprice its assets faster than its liabilities in a falling
interest rate environment which would have a negative effect on earnings.
However, in an increasing interest rate environment, the Company may experience
an increase in earnings. The above table has been prepared based on principal
payment due dates, contractual maturity dates or repricing intervals on variable
rate instruments.
Capital Adequacy
There are now two primary measures of capital adequacy for banks and
bank holding companies: (i) risk-based capital guidelines; and (ii) the leverage
ratio.
The risk-based capital guidelines measure the amount of a bank's
required capital in relation to the degree of risk perceived in its assets and
its off-balance sheet items. Capital is divided into two "tiers." Tier 1 capital
19
<PAGE>
consists of common shareholders' equity, non-cumulative and cumulative (bank
holding companies only), perpetual preferred stock and minority interests.
Goodwill is subtracted from the total. Tier 2 capital consists of the allowance
for loan losses, hybrid capital instruments, term subordinated debt and
intermediate term preferred stock. Banks are required to maintain a minimum
risk-based capital ratio of 8.0%, with at least 4.0% consisting of Tier 1
capital.
The second measure of capital adequacy relates to the leverage ratio.
The FDIC has established a 3.0% minimum leverage ratio requirement. Note that
the leverage ratio is computed by dividing Tier 1 capital into total assets.
Banks that are not rated CAMEL 1 by their primary regulator should maintain a
minimum leverage ratio of 3.0% plus an additional cushion of at least 1 to 2
percent, depending upon risk profiles and other factors.
A new rule was recently adopted by the Federal Reserve Board, the Office
of the Comptroller of the Currency and the FDIC that adds a measure of interest
rate risk to the determination of supervisory capital adequacy. Concurrently,
the agencies issued a joint policy statement to bankers, effective June 26,
1996, to provide guidance on sound practices for managing interest rate risk. In
the policy statement, the agencies emphasize the necessity of adequate oversight
by a bank's Board of Directors and senior management and of a comprehensive risk
management process. The policy statement also describes the critical factors
affecting the agencies' evaluations of a bank's interest rate risk when making a
determination of capital adequacy. The agencies' risk assessment approach used
to evaluate a bank's capital adequacy for interest rate risk relies on a
combination of quantitative and qualitative factors. Banks that are found to
have high levels of exposure and/or weak management practices will be directed
by the agencies to take corrective action. See "Item 1. Business -- Supervision
and Regulation."
Stockholders' equity at December 31, 1996 was $3,926,678. Management
believes that the Bank's capitalization is adequate to sustain growth which is
anticipated for fiscal 1997. The following table sets forth the applicable
required capital ratios for the Company and the Bank and the actual capital
ratios for both entities as of December 31, 1996:
<TABLE>
<CAPTION>
Leverage Ratio Tier 1 Capital Risk-Based Capital
-------------- -------------- ------------------
Regulatory Regulatory Regulatory
Minimum Actual Minimum Actual Minimum Actual
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Company................ 3.0% 9.35% 4.0% 12.27% 8.0% 13.28%
Bank................... 3.0% 9.35% 4.0% 12.27% 8.0% 13.20%
</TABLE>
Item 7. Financial Statements.
- -----------------------------
The following financial statements are filed with this report:
Independent Auditor's Report
Consolidated Statements of Financial Condition - December 31, 1996 and
1995
Consolidated Statements of Operations -- For the years ended December
31, 1996 and 1995
Consolidated Statements of Changes in Stockholders' Equity -- For the
years ended December 31, 1996 and 1995
Consolidated Statements of Cash Flows -- For the years ended December
31, 1996 and 1995
Notes to Consolidated Financial Statements
20
<PAGE>
[letterhead Saltmarsh, Cleveland & Gund]
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Sarasota BanCorporation, Inc. and Subsidiary
Sarasota, Florida
We have audited the accompanying consolidated statements of financial
condition of Sarasota BanCorporation, Inc. and Subsidiary as of December
31, 1996 and 1995, and the related consolidated statements of income,
changes in stockholders' equity, and cash flows for the years then ended.
These financial statements are the responsibility of the Bank's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Sarasota BanCorporation, Inc. and Subsidiary as of December 31,
1996 and 1995, and the consolidated results of its operations and its cash
flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ SALTMARSH, CLEVELAND & GUND
Pensacola, Florida
February 7, 1997
21
<PAGE>
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1996 AND 1995
ASSETS
1996 1995
---- ----
Cash and due from banks $ 2,467,658 $ 1,430,375
Federal funds sold 3,718,000 978,000
Securities available for sale 11,212,512 10,638,023
Loans receivable, less of
allowance for loan losses
of $ 313,939 in 1996 and $ 225,950 in 1995 30,994,843 22,279,086
Accrued interest receivable 313,185 293,258
Foreclosed real estate 71,673 68,507
Furniture and equipment, net 432,879 481,333
Deferred income taxes 220,288 112,858
Other assets 44,165 85,733
----------- ----------
Total Assets $49,475,203 $36,367,173
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Demand deposits $ 5,666,640 $ 5,459,835
NOW and money market deposits 10,509,570 9,113,408
Savings deposits 952,080 760,277
Other time deposits 26,733,473 16,379,871
------------ ------------
Total deposits 43,861,763 31,713,391
Repurchase agreements 1,487,823 1,086,144
Accrued interest payable 68,137 50,000
Other liabilities 130,802 105,479
------------ ------------
Total liabilities 45,548,525 32,955,014
------------ ------------
Commitments and Contingencies -- --
Stockholders' Equity:
Common stock, $ .01 par value;
10,000,000 shares authorized,
471,500 shares issued and outstanding 4,715 4,715
Additional paid-in capital 4,710,285 4,710,285
Accumulated deficit (815,415) (1,365,542)
Net unrealized appreciation on
available-for-sale
securities, net of taxes
$ 15,912 in 1996 and $ 37,942 in 1995 27,093 62,701
------------ ------------
Total stockholders' equity 3,926,678 3,412,159
------------ ------------
Total Liabilities and Stockholders' Equity $ 49,475,203 $ 36,367,173
============ ============
The accompanying notes are an
integral part of these consolidated
financial statements.
-22-
<PAGE>
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
---- ----
Interest Income:
Loans receivable and fees on loans $2,556,491 $1,713,244
Investment securities 643,639 676,729
Federal funds sold 92,048 138,737
---------- ----------
Total interest income 3,292,178 2,528,710
---------- ----------
Interest Expense:
Deposits 1,443,829 1,181,734
Other 86,582 19,214
---------- ----------
1,530,411 1,200,948
--------- ---------
Net interest income 1,761,767 1,327,762
Provision for Loan Losses 97,250 56,629
---------- ----------
Net interest income after
provision for loan losses 1,664,517 1,271,133
---------- ----------
Noninterest Income:
Service charges on deposit accounts 144,317 99,424
Net gain from sale of loans -0- 17,876
Other income 32,393 40,998
---------- ----------
Total noninterest income 176,710 158,298
---------- ----------
Noninterest Expenses:
Salaries and employee benefits 631,904 559,818
Occupancy expense 237,578 237,790
Data processing 46,856 29,890
Professional fees 57,955 59,388
Other expense 394,707 377,872
---------- ----------
Total noninterest expenses 1,369,000 1,264,758
---------- ----------
Income Before Income Tax Benefit 472,227 164,673
Income Tax Benefit 77,900 150,800
---------- ----------
Net Income $ 550,127 $ 315,473
========== ==========
Net Income Per Share of Common Stock $ 1.17 $ .67
========== ==========
The accompanying notes are an
integral part of these consolidated
financial statements.
-23-
<PAGE>
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Net
Unrealized
Appreciation
(Depreciation)
Additional on Available- Total
Common Paid-In Accumulated For-Sale Stockholders'
Stock Capital Deficit Securities Equity
----- ------- ------- ---------- ------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1995 $ 4,715 $ 4,710,285 $ (1,681,015) $ -0- $ 3,033,985
Net income 315,473 315,473
Net unrealized appreciation on
available-for-sale securities,
net of taxes of $ 37,942 62,701 62,701
----------- ----------- ------------- --------- -----------
Balance, December 31, 1995 4,715 4,710,285 (1,365,542) 62,701 3,412,159
Net income 550,127 550,127
Net changes in unrealized
appreciation (depreciation)
on available-for-sale securities,
net of taxes of $ 22,030 (35,608) (35,608)
----------- ----------- ------------- --------- -----------
Balance, December 31, 1996 $ 4,715 $ 4,710,285 $ (815,415) $ 27,093 $ 3,926,678
=========== =========== ============= ================== ===========
</TABLE>
The accompanying notes are an
integral part of these consolidated
financial statements.
-24-
<PAGE>
<TABLE>
<CAPTION>
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 550,127 $ 315,473
Adjustments to reconcile net income to net
cash provided by operating activities -
Depreciation and amortization 54,214 57,129
Provision for loan losses 97,250 56,629
Net amortization (accretion) on securities 17,749 (107,062)
Net realized gains on available-for-sale securities (5,419) (3,129)
Deferred tax benefit (85,400) (150,800)
Amortization of organization expenses 38,826 38,826
Change in operating assets and liabilities -
Increase in accrued interest receivable and other assets (17,185) (79,891)
Increase (decrease) in accrued interest and other liabilities 43,460 (53,935)
------------ ----------
Net cash provided by operating activities 693,622 73,240
------------ ----------
Cash Flows From Investing Activities:
Purchases of available-for-sale securities (5,810,816) (2,495,732)
Proceeds from sales and maturities of available-for-sale securities 4,591,564 1,042,004
Principal reductions received on available-for-sale securities 574,795 -0-
Purchases of held-to-maturity securities -0- (4,940,209)
Proceeds from maturities of held-to-maturity securities -0- 3,550,000
Net increase in loans (8,816,173) (6,570,941)
Net purchases of furniture and equipment (5,760) (77,131)
------------ ----------
Net cash used in investing activities (9,466,390) (9,492,009)
------------ ----------
Cash Flows From Financing Activities:
Net increase in demand, NOW, money market
and savings deposits 1,794,770 424,982
Net increase in time deposits 10,353,602 6,710,411
Net increase in repurchase agreements 401,679 1,086,144
------------ ----------
Net cash provided by financing activities 12,550,051 8,221,537
------------ ----------
Net Increase (Decrease) in Cash and Cash Equivalents 3,777,283 (1,197,232)
Cash and Cash Equivalents at Beginning of Year 2,408,375 3,605,607
------------ ----------
Cash and Cash Equivalents at End of Year $ 6,185,658 $ 2,408,375
============ ============
Supplemental Disclosures of Cash Flow Information:
Interest paid $ 1,513,574 $ 1,184,463
============ ============
Income taxes paid $ 7,500 $ -0-
============ ==========
</TABLE>
The accompanying notes are an
integral part of these consolidated
financial statements.
-25-
<PAGE>
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization:
Sarasota Bancorporation, Inc. (the "Company"), is a bank holding company
organized under the laws of the State of Florida.
Principles of Consolidation:
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, Sarasota Bank (the "Bank"). All material
intercompany balances and transactions have been eliminated in
consolidated.
Business Activity:
The Bank is a banking corporation organized in 1992 under the laws of the
State of Florida with deposits being insured by the Federal Deposit
Insurance Corporation. The Bank considers its primary market area as
Sarasota County, and the majority of its commercial and mortgage loans
granted are to customers that reside in this area.
Accounting Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Cash Equivalents:
For the purpose of presentation in the statements of cash flows, cash and
cash equivalents are defined as those amounts included in the balance-sheet
caption "cash and due from banks" and "federal funds sold." Generally,
federal funds are sold for one day periods.
Securities Available for Sale:
Available-for-sale securities consist of bonds, notes and other securities
not classified as trading securities nor as held-to-maturity securities.
Unrealized holding gains and losses, net of tax, on available-for-sale
securities are reported as a net amount in a separate component of
stockholders' equity until realized.
-26-
<PAGE>
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Gains and losses on the sale of available-for-sale securities are
determined using the specific-identification method.
Declines in the fair value of individual available-for-sale securities
below their cost that are other than temporary result in write-downs of the
individual securities to their fair value. The related write-downs are
included in earnings as realized losses.
Premiums and discounts are recognized in interest income using the interest
method over the period to maturity.
Loans Receivable:
Loans receivable that management has the intent and ability to hold for the
foreseeable future or until maturity or pay-off are reported at their
outstanding principal adjusted for any charge-offs, the allowance for loan
losses, and any deferred fees or costs on originated loans.
Loan origination fees and certain direct origination costs are capitalized
and recognized as an adjustment of the yield of the related loan.
The accrual of interest on impaired loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as they
become due. When interest accrual is discontinued, all unpaid accrued
interest is reversed. Interest income is subsequently recognized only to
the extent cash payments are received.
For other non-performing loans for which impairment has not been recognized
the accrual of interest is discontinued on a loan when management believes
after considering economic and business conditions that the borrower's
financial condition is such that the collection of interest is
questionable.
The allowance for loan losses is increased by charges to income and
decreased by charge-offs (net of recoveries). Management's periodic
evaluation of the adequacy of the allowance is based on the Bank's past
loan loss experience, known and inherent risks in the portfolio, adverse
situations that may affect the borrower's ability to repay, the estimated
value of any underlying collateral, and current economic conditions.
Sale of Loan Participations:
The Bank originates loans partially guaranteed by the U.S. Small Business
Administration. The Bank may sell the guaranteed portion of certain of
these loans in the secondary market at a premium. The premiums on these
transactions are recorded as gains on sales of loans and included in
noninterest income.
-27-
(Sheet II)
<PAGE>
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Foreclosed Real Estate:
Real estate properties acquired through, or in lieu of, loan foreclosure
are to be sold and are initially recorded at fair value at the date of
foreclosure establishing a new cost basis. After foreclosure, valuations
are periodically performed by management and the real estate is carried at
the lower of carrying amount or fair value less cost to sell. Revenue and
expenses from operations are included in current earnings.
Furniture and Equipment:
Furniture and equipment and leasehold improvements are carried at cost,
less accumulated depreciation and amortization computed principally by the
straight-line method.
Income Taxes:
Deferred tax assets and liabilities are reflected at currently enacted
income tax rates applicable to the period in which the deferred tax assets
or liabilities are expected to be realized or settled. As changes in tax
laws or rates are enacted, deferred tax assets and liabilities are adjusted
through the provision for income taxes.
The Company and the Bank file consolidated federal income tax returns, with
the amount of income tax expense or benefit computed and allocated on a
separate return basis.
Financial Instruments:
In the ordinary course of business the Bank has entered into
off-balance-sheet financial instruments consisting of commitments to extend
credit, standby letters of credit, and financial guarantees. Such financial
instruments are recorded in the financial statements when they are funded
or related fees are incurred or received.
Net Income Per Share of Common Stock:
Net income per share of common stock is computed on the basis of the number
of shares outstanding.
Reclassifications:
Certain prior year amounts have been reclassified to conform to the current
period presentation.
-28-
(Sheet III)
<PAGE>
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 2 - INVESTMENT SECURITIES
Investment securities have been classified in the statements of financial
condition according to management's intent. The carrying amount of
securities and their approximate fair values are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Available-For-Sale:
December 31, 1996 -
U.S. Treasury securities $ 5,130,969 $ 47,317 $ (12,348) $ 5,165,938
U.S. government agency securities 6,038,538 15,129 (7,093) 6,046,574
----------- ----------- ------------- -----------------
$11,169,507 $ 62,446 $ (19,441) $ 11,212,512
=========== =========== ============= =================
December 31, 1995 -
U.S. Treasury securities $ 5,119,182 $ 95,128 $ (4,591) $ 5,209,719
U.S. government agency securities 5,418,198 20,173 (10,067) 5,428,304
----------- ----------- ------------- -----------------
$10,537,380 $ 115,301 $ (14,658) $ 10,638,023
=========== =========== ============= =================
</TABLE>
In December 1995, as a result of a one-time exemption allowed by the
Financial Accounting Standards Board, the Bank elected to reclassify
certain securities classified as held-to-maturity to available-for-sale.
The amortized cost and fair value of these securities amounted to
approximately, $ 6,525,000 and $ 6,613,000, respectively.
Gross realized gains and losses on sales of available-for-sale securities
amounted to $ 6,349 and $ 930, respectively in 1996 and $ 3,129 and $ -0-,
respectively in 1995.
-29-
(Sheet IV)
<PAGE>
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 2 - INVESTMENT SECURITIES (Continued)
The scheduled maturities of securities available-for-sale at December
31, 1996, are as follows:
Amortized Fair
Cost Value
---- -----
Due in one year or less $ 1,995,719 $ 2,005,625
Due from one to five years 3,542,190 3,568,715
Due from five to ten years 5,631,598 5,638,172
----------- -----------
$11,169,507 $11,212,512
=========== ===========
For purposes of the maturity table, mortgage-backed securities, which are
not due at a single maturity date, have been allocated over maturity
groupings based on the weighted-average contractual maturities of
underlying collateral. The mortgage-backed securities may mature earlier
than their weighted-average contractual maturities because of principal
prepayments.
Investment securities carried at approximately $ 5,165,900 at December 31,
1996 and $ 6,605,000 at December 31, 1995, were pledged to secure public
deposits and for other purposes required or permitted by law.
NOTE 3 - LOANS RECEIVABLE
The components of loans in the statements of financial condition are as
follows:
1996 1995
---- ----
Real estate $ 20,968,819 $ 16,285,037
Commercial 7,461,934 5,022,326
Installment 2,908,712 1,226,727
Other 62,162 31,144
------------ ------------
31,401,627 22,565,234
Net deferred loan fees (92,845) (60,198)
Allowance for loan losses (313,939) (225,950)
------------ ------------
Loans receivable, net $ 30,994,843 $ 22,279,086
============ ============
The Bank grants commercial, real estate and consumer loans in the State of
Florida with its primary concentration being in Sarasota County, Florida.
Although the Bank's loan portfolio is diversified, a significant portion of
its loans are secured by real estate.
-30-
(Sheet V)
<PAGE>
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 3 - LOANS RECEIVABLE (Continued)
An analysis of the change in the allowance for loan losses follows:
1996 1995
---- ----
Balance, at January 1 $ 225,950 $ 188,930
Loans charged off (22,263) (32,640)
Recoveries 13,002 13,031
--------- ---------
Net loans charged-off (9,261) (19,609)
Provision for loan losses 97,250 56,629
--------- ---------
Balance, at December 31 $ 313,939 $ 225,950
========= =========
Loans on which the accrual of interest has been discontinued or reduced,
for which impairment had not been recognized, amounted to approximately $
40,500 at December 31, 1995. If interest on those loans had been accrued,
such income would have approximated $ 1,300 in 1995. Interest income on
those loans is recorded only when received. There were no loans on which
the accrual of interest had been discontinued or reduced at December 31,
1996.
NOTE 4 - FURNITURE AND EQUIPMENT
Components of furniture and equipment included in the statements of
financial condition are as follows:
1996 1995
---- ----
Furniture and equipment $ 200,028 $ 193,997
Leasehold improvements 411,203 411,474
--------- ---------
611,231 605,471
Less: Accumulated depreciation and amortization (178,352) (124,138)
--------- ---------
$ 432,879 $ 481,333
========= =========
Depreciation and amortization expense charged to operations amounted to
$54,214 in 1996 and $ 57,129 in 1995.
-31-
(Sheet VI)
<PAGE>
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 5 - TIME DEPOSITS
The aggregate amount of CDs, each with a minimum denomination of $
100,000 was approximately $ 5,495,000 in 1996 and $ 3,618,000 in 1995.
At December 31, 1996, the scheduled maturities of CDs are as follows:
1997 $ 977,281
1998 20,538,562
1999 3,874,386
2000 214,752
2001 1,128,492
-----------
$ 26,733,473
NOTE 6 - CONCENTRATION OF DEPOSITS
At December 31, 1996, twelve deposit relationships represent approximately
17% of the Bank's total deposits.
NOTE 7 - REPURCHASE AGREEMENTS
At December 31 the Bank had entered into repurchase agreements with Bank
customers. The repurchase agreements generally mature within one to four
days from the transaction date. The average balance and interest rate under
the repurchase agreements amounted to $1,373,413 and 5.03% in 1996 and $
339,045 and 5.3% in 1995.
NOTE 8 - STOCKHOLDERS' EQUITY
The Bank is subject to certain restrictions on the amount of dividends that
it may declare without regulatory approval. However, it is management's
intent not to pay dividends until such time as the accumulated deficit has
been recovered.
In 1991, the Company authorized 1,000,000 shares of preferred stock with a
par value of $ .10 per share; however, there were no shares of preferred
stock issued and outstanding at December 31, 1996 and 1995.
-32-
(Sheet VII)
<PAGE>
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 9 - INCOME TAXES
The provision for income taxes consists of the following:
1996 1995
---- ----
Current tax provision $ 7,500 $ -0-
Deferred federal benefit (85,400) (150,800)
----------- --------
Total income tax benefit $(77,900) $(150,800)
=========== ========
The current tax provision represents income taxes calculated for
alternative minimum tax in 1996. During 1996, the Bank utilized existing
net operating loss carryforwards in computing taxable income. At December
31, 1996, cumulative federal and state net operating loss carryforwards
amounted to approximately $ 900,000. The net operating loss carryforwards
available to the Bank will expire in various years from 2007 to 2009.
The financial statements of the Bank reflect a zero current income tax
provision for 1995. The zero provision was the result of the use of federal
and state net operating loss carryforwards in 1995.
The tax provision differs from the amount that would be obtained by
applying federal and state tax rates to pretax income primarily because of
changes in the valuation allowance for deferred tax assets related to the
expected benefit from operating loss carryforwards.
Deferred tax assets and liabilities included in the statements of financial
condition were as follows:
1996 1995
---- ----
Deferred tax assets:
Start-up costs $ 38,155 $ 69,402
Allowance for loan losses 107,648 77,285
Expected benefit of net
operating loss carryforwards 379,249 450,515
Deferred tax valuation allowance (288,852) (446,402)
--------- ---------
236,200 150,800
Deferred tax liabilities:
Net unrealized appreciation
on available-for-sale securities (15,912) (37,942)
--------- ---------
Net deferred tax asset $ 220,288 $ 112,858
========= =========
-33-
(Sheet VIII)
<PAGE>
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 10 - STOCK WARRANTS AND OPTIONS
On September 15, 1992, the Company's organizers were granted warrants to
purchase additional common stock equal to 72.83% of their initial
investment in the common stock (117,500 shares) of the Company. The
warrants are exercisable at any time during the five-year period commencing
on the date of grant. The exercise price of the warrants will be the
greater of $ 10 per share of common stock or the book value per share of
common stock on the exercise date.
On September 15, 1992, the Company's president was granted stock options to
acquire 4,400 shares of the Company's common stock. Additional options may
be granted to the president based on the Company's meeting certain
operational objectives or in the event of a change in control of the
Company. All options are exercisable at any time during the five-year
period following their issuance at a price equal to the fair market value
upon exercise or at book value as of September 15, 1992, whichever is
higher.
No warrants or options have been exercised as of December 31, 1996.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
Leases:
The Bank leases its banking facility and an adjacent parcel of land under
operating leases expiring in 2001. The leases require payment of taxes,
insurance and maintenance costs in addition to rental payments. The lease
on the banking facility provides for two consecutive five-year renewal
options.
Future minimum lease payments under the operating leases for each of the
next five years and in the aggregate are summarized as follows:
1997 $192,042
1998 192,042
1999 196,722
2000 196,722
2001 196,722
--------
Total future minimum lease payments $974,250
========
Rental expense relating to operating leases amounted to approximately $
198,000 in 1996 and $ 221,000 in 1995.
Future Minimum Rentals:
The Bank subleases a portion of its facilities at a monthly rate of $ 4,410
plus applicable state sales tax. Future minimum rentals under this sublease
should approximate $ 44,000 through the expiration of the lease in November
1997.
-34-
(Sheet IX)
<PAGE>
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 11 - COMMITMENTS AND CONTINGENCIES (Continued)
Financial Instruments:
The Bank is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit, standby
letters of credit, and financial guarantees. Those instruments involve, to
varying degrees, elements of credit and interest-rate risk in excess of the
amount recognized in the statements of financial condition. The contract or
notional amounts of those instruments reflect the extent of the Bank's
involvement in particular classes of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit,
standby letters of credit, and financial guarantees written is represented
by the contractual notional amount of those instruments. The Bank uses the
same credit policies in making commitments and conditional obligations as
it does for on-balance-sheet instruments.
Commitments to Extend Credit and Financial Guarantees. Commitments to
extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Bank evaluates each
customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Bank upon extension of
credit, is based on management's credit evaluation of the counterparty.
Collateral held varies but may include accounts receivable; inventory,
property, plant, and equipment; and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those guarantees
are primarily issued to support public and private borrowing arrangements,
including commercial paper, bond financing, and similar transactions. The
credit risk involved in issuing letters of credit is essentially the same
as that involved in extending loan facilities to customers. The Bank holds
collateral for those commitments for which collateral is deemed necessary.
The Bank has not incurred any losses on its commitments in 1996.
A summary of the notional amounts of the Bank's financial instruments with
off-balance-sheet risk at December 31, 1996, follows:
Commitments to extend credit $4,382,648
==========
Standby letters of credit $ 142,583
==========
-35-
(Sheet X)
<PAGE>
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 11 - COMMITMENTS AND CONTINGENCIES (Continued)
Unused Lines-of-Credit:
At December 31, 1996, the Bank had lines of credits with banks enabling the
Bank to borrow up to $ 12,750,000 subject to such terms as outlined in the
related agreements. The arrangements are reviewed annually for renewal of
the credit lines. The lines of credit were not in use at December 31, 1996.
Contingencies:
In the ordinary course of business, the Bank has various outstanding
contingent liabilities that are not reflected in the accompanying financial
statements. In addition, the Bank is a defendant in certain claims and
legal actions arising in the ordinary course of business. In the opinion of
management, after consultation with legal counsel, the ultimate disposition
of these matters is not expected to have a material adverse effect on the
financial condition of the Bank.
NOTE 12 - RELATED PARTY TRANSACTIONS
The Bank has entered into transactions with its directors, significant
stockholders, and their affiliates (related parties). The aggregate amount
of loans to such related parties at December 31, 1996, was approximately $
462,000. During 1996, new loans to such related parties amounted to
approximately $ 112,000 and repayments amounted to approximately $ 146,000.
Also, certain related parties maintain significant deposit balances with
the Bank in the aggregate amount of approximately $ 1,006,000 at December
31, 1996.
One of the Bank's directors provides various legal services to the Bank.
Fees for these services amounted to approximately $ 12,300 in 1996 and $
25,800 in 1995. Another director provides advertising, printing, and other
miscellaneous services to the Bank. The gross billings for these services,
which includes cost passed through by other companies who are actually
providing their services to the Bank, amounted to approximately $ 47,200 in
1996 and $ 33,000 in 1995.
NOTE 13 - REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Bank's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective
action, the Bank must meet specific capital guidelines that involve
quantitative measures of the Bank's assets, liabilities, and certain
off-balance- sheet items as calculated under regulatory accounting
practices. The Bank's capital amounts and classification are also subject
to qualitative judgments by the regulators about components, risk
weightings, and other factors.
-36-
(Sheet XI)
<PAGE>
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 13 - REGULATORY MATTERS (Continued)
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to
average assets (as defined). Management believes, as of December 31, 1996,
that the Bank meets all capital adequacy requirements to which it is
subject.
As of December 31, 1996, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. To be
categorized as well capitalized the Bank must maintain minimum total
risk-based, Tier I risk-based, and Tier I leverage ratioos as set forth in
the table. There are no conditions or events since that notification that
management believes have changed the institution's category.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes: Action Provisions:
------ ------------------ ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total Capital
greater greater greater greater
than or than or than or than or
(to Risk Weighted Assets) $4,130,812 13.28% equal to $2,487,760 equal to 8.0% equal to $3,109,700 equal to 10.0%
Tier I Capital
greater greater greater greater
than or than or than or than or
(to Risk Weighted Assets) $3,816,873 12.27% equal to $1,243,880 equal to 4.0% equal to $1,865,820 equal to 6.0%
Tier I Capital
greater greater greater greater
than or than or than or than or
(to Average Assets) $3,816,873 9.35% equal to $1,633,280 equal to 4.0% equal to $2,041,600 equal to 5.0%
</TABLE>
NOTE 14 - FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Bank in estimating
fair values of financial instruments as disclosed herein:
Cash and short term instruments. The carrying amounts of cash and
short-term instruments approximate their fair value.
Available-for-sale securities. Fair values for securities are based on
quoted market prices.
Loans receivable. For variable-rate loans that reprice frequently and have
no significant change in credit risk, fair values are based on carrying
values. Fair values for certain mortgage loans (for example, one-to-four
family residential) and other consumer loans are based on quoted market
prices of similar loans sold in conjunction with securitization
transactions, adjusted for differences in loan characteristics. Fair values
for commercial real estate and commercial loans are estimated using
discounted cash flow analyses using interest rates currently being offered
for loans with similar terms to borrowers of similar credit quality.
-37-
(Sheet XII)
<PAGE>
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 14. - FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)
Deposit liabilities. The fair values disclosed for demand deposits are, by
definition, equal to the amount payable on demand at the reporting date
(that is, their carrying amounts). The carrying amounts of variable-rate,
fixed-term money market accounts and certificates of deposit ("CDs" )
approximate their fair values at the reporting date. Fair values for
fixed-rate CDs are estimated using a discounted cash flow calculation that
applies interest rates currently being offered on certificates to a
schedule of aggregated expected monthly maturities on time deposits.
Repurchase agreements. The carrying amounts of repurchase agreements with
Bank customers approximate their fair values.
Accrued interest. The carrying amounts of accrued interest approximate
their fair values.
Off balance-sheet instruments. Fair values for off-balance-sheet lending
commitments are based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and
the counterparties' credit standings. The estimated fair value for these
instruments was insignificant at December 31, 1996 and 1995.
Limitations. Fair value estimates are made at a specific point in time and
are based on relevant market information which is continuously changing.
Because no quoted market prices exist for a significant portion of the
Bank's financial instruments, fair values for such instruments are based on
management's assumptions with respect to future economic conditions,
estimated discount rates, estimates of the amount and timing of future cash
flows, expected loss experience, and other factors. These estimates are
subjective in nature involving uncertainties and matters of significant
judgment; therefore, they cannot be determined with precision. Changes in
the assumptions could significantly affect the estimates.
The estimated fair values of the Company's financial instruments at
December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
--------------------------------- -------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 6,185,658 $ 6,185,658 $ 2,408,375 $ 2,408,375
Securities available-for-sale 11,212,512 11,212,512 10,638,023 10,638,023
Loans receivable 30,994,843 31,098,427 22,279,086 22,273,421
Accrued interest receivable 313,185 313,185 293,258 293,258
Financial liabilities:
Deposits 43,861,763 43,968,895 31,713,391 31,815,920
Repurchase agreements 1,487,823 1,487,823 1,086,144 1,086,144
Accrued interest payable 68,137 68,137 50,000 50,000
</TABLE>
-38-
(Sheet XIII)
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
- --------------------------------------------------------------------------------
Financial Disclosure.
---------------------
There has been no occurrence requiring a response to this item.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
- --------------------------------------------------------------------------------
With Section 16(a) of the Exchange Act.
---------------------------------------
The Company's directors and executive officers are as follows:
Name Position with Company
---- ---------------------
James W. Demler, M.D Class I Director
Christine L. Jennings President, Chief Executive Officer and
Class III Director
Susan M. Baker Class II Director
Kenneth H. Barr Class II Director
Timothy J. Clarke Class III Director
Susan K. Flynn Vice President, Chief Financial Officer and Cashier
Edward S. Levi Class I Director
Sam D. Norton Secretary and Class III Director
Michael R. Pender, Jr Treasurer and Class III Director
A. Dean Pratt Class I Director
Stanford H. Ross Class II Director
Paul D. Thatcher Senior Vice President and Chief Lending Officer
Gilbert J. Wellman Chairman of the Board and Class II Director
Each of the Company's directors has served in such capacity since May
1991. The Company has a classified Board of Directors, whereby approximately
one-third of the members are elected each year at the Company's annual meeting
of shareholders. Upon such election, each director of the Company will serve for
a term of three years. The Company's officers are appointed by its Board of
Directors and hold office at the will of the Board.
James W. Demler, M.D., age 50, served as Chairman of the Board of the
Company from December 1990 to April 1996. Dr. Demler joined the organizational
group in October 1990. Dr. Demler is a physician specializing in urological
surgery. Dr. Demler helped establish Sarasota Urological Associates and has been
in private practice since 1983. Dr. Demler is former Chief of Surgery at
Doctor's Hospital of Sarasota.
39
<PAGE>
Christine L. Jennings, age 51, has served as President and Chief Executive
Officer of the Company since May 1991 and of the Bank since September 1992 and
has been engaged in the organization of the Company and the Bank since May 1990.
From 1987 to 1990, Ms. Jennings served as Senior Vice President and Chief
Lending Officer, as well as a director, of Liberty National Bank in Bradenton,
Florida. From 1985 to 1987, she served as Vice President - Commercial Real
Estate of NCNB National Bank of Florida in Sarasota/Tampa, Florida. From 1984 to
1985, Ms. Jennings served as Vice President of Southeast Bank. Prior to that,
she served in various capacities with Huntington National Bank in Columbus, Ohio
from 1970 to 1984. Ms. Jennings has 31 years of banking experience.
Susan M. Baker, age 40, served in the commercial lending and corporate
banking department of NationsBank in Sarasota from 1985 to 1987 and served as a
branch manager for NationsBank from 1983 to 1985. Mrs. Baker has served as an
office administrator for the medical practice of her husband since 1987 and has
been a partner in a family-owned real estate, lumber and insurance business
since 1981. Mrs. Baker is also a certified financial planner.
Kenneth H. Barr, age 56, served as part owner and general manager of
Schenkel's Restaurant on Longboat Key, Florida from 1968 to 1994. Mr. Barr
presently is a restauranteur.
Timothy J. Clarke, age 52, has served as President of Clarke Advertising &
Public Relations, Inc. since 1987. From 1985 to 1987, he served as Vice
President of Advertising and Public Relations for Murray Industries.
Susan K. Flynn, age 35, has served as the Vice President, Chief Financial
Officer and Cashier of the Company and the Bank since 1995. From 1991 to 1995,
Ms. Flynn served as the Vice President and Cashier of University State Bank in
Tampa, Florida. Prior to that, Ms. Flynn served as the Assistant Branch Manager,
the Consumer Loan Officer and the Compliance Officer for First Union National
Bank in Tampa, Florida.
Edward S. Levi, age 72, is currently retired. Mr. Levi served as President
and Chief Executive Officer of Samuel Levi & Company, Inc. a retail furniture
business headquartered in Portsmouth, Ohio, from 1948 to 1988. Mr. Levi has been
retired since 1988. Mr. Levi also served as a director of Bank One, N.A. in
Portsmouth, Ohio from 1977 to 1988 and was a member of that bank's executive,
personnel and compensation committees.
Sam D. Norton, age 37 is a partner in the law firm of Norton, Moran,
Hammersley, Dunlap, Gurley & Lopez, P.A. in Sarasota and has been engaged in
private practice since 1988. Mr. Norton practices law in the area of real
estate, general business law and lender representation. He also serves as a
director of Surgical Safety Products, Inc.
Michael R. Pender, Jr., age 45, is a certified public accountant, and has
been a partner of Cavanaugh & Co., CPAs, since 1979.
A. Dean Pratt, age 66, has been retired since 1985. Prior to his
retirement, Mr. Pratt served as Chairman of the Board, President and Chief
Executive Officer of First State Bank of Morrisonville in Morrisonville,
Illinois from 1968 to 1984.
Stanford H. Ross, age 65, has served as the President and owner of Sand
Trap Golf, Inc. (d/b/a House of Golf) in Sarasota since 1973. Prior to 1973, Mr.
Ross spent 14 years in sales and sales management in the computer field,
primarily with IBM and Honeywell.
40
<PAGE>
Paul D. Thatcher, age 48, has served as the Senior Vice President and
Chief Lending Officer of the Company and the Bank since February 1994. From 1986
to 1994, Mr. Thatcher served as the Vice President, Credit Review for
NationsBank in Tampa, Florida.
Gilbert J. Wellman, age 75, has served as the Chairman of the Board of
Directors of the Company since April 1996. Mr. Wellman served as President and
Chief Executive Officer of Tower National Bank in Lima, Ohio from 1964 to 1983
and was the Organizing Chairman of that bank. From 1983 when the Bank was sold
to BancOne Corporation until his retirement in 1987, Mr. Wellman served as
Chairman and Chief Executive Officer of the BancOne subsidiary. Since 1988, Mr.
Wellman has been an insurance broker.
The Company is not subject to the requirements of Section 16 of the
Securities Exchange Act of 1934, as amended.
Item 10. Executive Compensation
- -------------------------------
The following table provides certain summary information concerning
compensation paid or accrued by the Company to or on behalf of the Company's
Chief Executive Officer for the years ended December 31, 1996, 1995 and 1994. No
other executive officer's compensation exceeded $100,000 during 1996.
Summary Compensation Table
Annual Compensation
-------------------
Name and
Principal Position Year Salary Bonus
- ------------------ ---- ------ -----
Christine L. Jennings 1996 $79,082 $20,500(1)
President and 1995 77,980 17,094(2)
Chief Executive 1994 72,000 -
Officer
- ------------------------------
(1) Earned in 1996 but paid in January 1997.
(2) Earned in 1995 but paid in January 1996.
The Bank's outside directors are paid $100 for each Board meeting
attended. Directors who are also executive officers of the Bank are not
additionally compensated as members of the Bank's Board of Directors. Currently,
the directors of the Company receive no compensation for their services, and no
compensation is proposed to be paid to the Company's directors during 1997.
Employment Agreement
On April 29, 1991, the Company entered into an employment agreement with
Christine L. Jennings, effective upon commencement of business of the Bank,
pursuant to which she serves as President and Chief Executive Officer of the
Company and the Bank. The agreement is for a term which expires on December 31,
1997, the fifth full year after the date the Bank opened for business. The
agreement provides for Ms. Jennings to be paid an annual base salary of $72,000,
with increases to be made in the discretion of the Company's Board of Directors.
In addition, Ms. Jennings will receive annual cash bonuses equal to 5% of the
Bank's net income (but not exceeding 25% of Ms. Jennings' base salary) upon the
attainment of certain profitability levels. The Board of Directors may also
grant such other bonuses as may be determined in its sole discretion. Ms.
Jennings will continue to receive an automobile allowance of $400 per month.
The employment agreement provides for the grant of stock options for a
number of shares equal to 1% of the total number of shares of the Company's
Common Stock sold in the Company's initial public stock offering.
41
<PAGE>
Pursuant to such provision, Ms. Jennings was granted 4,400 shares in 1992. In
addition, Ms. Jennings is entitled to receive options covering the same number
of shares in each of the second through fifth years of employment upon the
Bank's attainment of certain profitability levels. No options were granted under
this provision in 1996. Any options granted under the employment agreement are
exercisable for a term of five years from the date of grant at an exercise price
equal to the greater of (i) $10.00 per share, or (ii) the book value per share
of Common Stock on the exercise date of the option. In the event of a change in
control of the Company or the Bank, all stock options contemplated in the
employment agreement will be granted to Ms. Jennings, notwithstanding whether
the profitability criteria set forth therein have been attained.
The employment agreement also provides for the provision of certain
benefits by the Company, including payment of luncheon or civic club dues,
professional association and organization fees and life, health and disability
insurance premiums. In the event that Ms. Jennings is terminated by the Company
without cause, the employment agreement provides for the payment of all
compensation and benefits provided in the agreement for a period of seven months
thereafter or until she accepts comparable employment, whichever occurs earlier.
The employment agreement provides that the Company may terminate Ms.
Jennings for "cause," generally defined as (i) conviction or indictment of any
felony or any act of fraud, misappropriation or embezzlement; (ii) engaging in
conduct or activities materially damaging to the business of the Company or the
Bank; (iii) failure, without reasonable cause, to devote her full business time
and best efforts to the business of the Company or the Bank; (iv) any order from
a regulatory authority or court of law directing the Company to suspend or
remove her; or (v) failure or refusal to comply with the provisions of her
employment agreement.
No options were granted to or exercised by the Company's Chief Executive
Officer during 1996. The following table presents information regarding the
value of options held by the Company's Chief Executive Officer at December 31,
1996.
Fiscal Year End Option Values
Value of
Number of Unexercised
Unexercised Options in-the-Money Options
at Fiscal Year End at Fiscal Year End
Exercisable/ Exercisable/
Name/Position Unexercisable Unexercisable
- --------------------------------------------------------------------------------
Christine L. Jennings 4,400/0 $4,400/$0
President and Chief
Executive Officer
- ------------------------
(1) Dollar values calculated by determining the difference between the
estimated fair market value of the Company's Common Stock at December 31,
1996 ($11.00) and the exercise price of such options. The fair market
value of the Company's Common Stock was estimated based on the sales
price of the Common Stock sold in recent private transactions.
42
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management.
- ------------------------------------------------------------------------
The following table sets forth certain information as of March 1, 1997
with respect to ownership of the outstanding Common Stock of the Company by (i)
all persons known by the Company to beneficially own more than 5% of the
outstanding shares of Common Stock of the Company, (ii) each director of the
Company and (iii) all executive officers and directors of the Company as a
group:
Percent of
Shares of Common Stock Outstanding
Name of Beneficial Owner Beneficially Owned (1) Shares
- ------------------------ ---------------------- ------
Susan M. Baker (2) 17,283 3.6%
Kenneth H. Barr (3) 10,183 2.1
Timothy J. Clarke (4) 8,642 1.8
James W. Demler, M.D. (5) 24,566 5.1
Christine L. Jennings (6) 17,362 3.6
Edward S. Levi (7) 25,925 5.4
Sam D. Norton(8) 16,069 3.4
Michael R. Pender, Jr. (9) 10,370 2.2
A. Dean Pratt (10) 24,492 5.1
Stanford H. Ross (11) 17,040 3.5
Gilbert J. Wellman (12) 102,779 20.3
All executive officers and directors
as a group (13 persons) 275,111 49.8%
- --------------------------------
(1) Except as otherwise indicated, each person named in this table possesses
sole voting and investment power with respect to the shares beneficially
owned by such person. "Beneficial Ownership" includes shares for which an
individual, directly or indirectly, has or shares voting or investment power
or both and also includes warrants and options which are exercisable within
sixty days of the date hereof. Beneficial ownership as reported in the above
table has been determined in accordance with Rule 13d-3 of the Securities
Exchange Act of 1934. The percentages are based upon 471,500 shares
outstanding, except for certain parties who hold presently exercisable
warrants or options to purchase shares. The percentages for those parties
who hold presently exercisable warrants or options are based upon the sum of
471,500 shares plus the number of shares subject to presently exercisable
warrants or options held by them, as indicated in the following notes.
(2) Includes 7,283 shares of Common Stock subject to presently exercisable stock
purchase warrants granted in connection with the Company's initial stock
offering.
(3) Includes 500 shares owned individually by Mr. Barr, 2,400 shares held by his
individual retirement account and 7,283 shares of Common Stock subject to
presently exercisable stock purchase warrants granted in connection with the
Company's initial stock offering.
(4) Includes 2,700 shares owned individually by Mr. Clarke and 2,300 shares held
by a company he controls. In addition, amount includes 3,642 shares of
Common Stock subject to presently exercisable stock purchase warrants
granted in connection with the Company's initial stock offering.
43
<PAGE>
(5) Includes 7,500 shares owned individually by Dr. Demler, 2,000 shares held by
his individual retirement account and 500 shares held by his spouse's
individual retirement account. Includes 14,566 shares of Common Stock
subject to presently exercisable stock purchase warrants granted in
connection with the Company's initial stock offering. Dr. Demler's address
is 1547 Bayview Drive, Sarasota, Florida 34239.
(6) Includes 5,952 shares owned individually by Ms. Jennings and 1,548 shares
held by her individual retirement account. In addition, amount includes
5,462 shares of Common Stock subject to presently exercisable stock purchase
warrants granted in connection with the Company's initial stock offering and
4,400 shares subject to presently exercisable stock options.
(7) Shares held by Mr. Levi's individual retirement account. In addition, amount
includes 10,925 shares of Common Stock subject to presently exercisable
stock purchase warrants granted in connection with the Company's initial
stock offering. Mr. Levi's address is 454 N. Washington Drive, Sarasota,
Florida 34236.
(8) Includes 7,500 shares owned individually by Mr. Norton and 2,500 owned by
his law firm's profit sharing plan, of which he is a co-trustee. In
addition, amount includes 6,069 shares of Common Stock subject to presently
exercisable stock purchase warrants granted in connection with the Company's
initial stock offering.
(9) Includes 3,500 shares held by Mr. Pender's individual retirement account and
2,500 shares held by his spouse's individual retirement account. In
addition, amount includes 4,370 shares of Common Stock subject to presently
exercisable stock purchase warrants granted in connection with the Company's
initial stock offering.
(10)Shares held in a revocable living trust of which Mr. Pratt is the trustee
and a beneficiary. In addition, amount includes 9,832 shares of Common Stock
subject to presently exercisable stock purchase warrants granted in
connection with the Company's initial stock offering. Mr. Pratt's address is
1711 Loma Linda Street, Sarasota, Florida 34239.
(11)Includes 1,350 shares held by Mr. Ross' individual retirement account, 5,600
shares owned by Mr. Ross' spouse and 1,350 shares held by his spouse's
individual retirement account. In addition, amount includes 8,740 shares of
Common Stock subject to presently exercisable stock purchase warrants
granted in connection with the Company's initial stock offering.
(12)Includes 40,500 shares held by a trust for which Mr. Wellman serves as
trustee, 28,413 shares owned by Mr. Wellman's wife and 33,866 shares of
Common Stock subject to presently exercisable stock purchase warrants
granted in connection with the Company's initial stock offering. Mr.
Wellman's address is 7413 Links Court, Sarasota, Florida 34243.
Item 12. Certain Relationships and Related Transactions.
- --------------------------------------------------------
Sam D. Norton, a director of the Company, is an attorney in Sarasota,
Florida and received from the Company legal fees during fiscal 1995 and 1996
totalling $25,800 and $13,736, respectively, for services rendered to the
Company. Timothy J. Clarke, also a director of the Company, is owner of Clarke
Advertising and Public Relations, to which the Company paid a total of $33,000
and $50,429 during 1995 and 1996, respectively, which includes costs passed
through by other companies providing marketing services to the Company. Michael
R. Pender, Jr., another director of the Company, provided accounting services to
the Company and received accounting fees during fiscal 1996 totaling $1,700.
The Bank has outstanding loans to certain of the Company's directors,
executive officers, their associates and members of the immediate families of
such directors and executive officers. These loans were made in the ordinary
course of business, on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with
persons not affiliated with the Company or the Bank and do not involve more than
the normal risk of collectibility or present other unfavorable features.
44
<PAGE>
Item 13. Exhibits and Reports on Form 8-K.
- ------------------------------------------
(a) Exhibits. The following exhibits are filed with or incorporated by
--------
reference into this report. The exhibits which are denominated by an asterisk
(*) were previously filed as a part of, and are hereby incorporated by reference
from either (i) a Registration Statement on Form S-18 under the Securities Act
of 1933 for the Registrant, as filed with the Securities and Exchange Commission
on June 6, 1991, Registration No. 33-41045, as amended on July 15, 1991 by
Amendment No. 1 and as amended on August 5, 1991 by Amendment No. 2 (the
"S-18"), (ii) the Annual Report on Form 10-KSB for the year ended December 31,
1992 (the "1992 10-KSB"), (iii) the Annual Report on Form 10-KSB for the year
ended December 31, 1993 (the "1993 10-KSB") or (iv) the Current Report on Form
8-K dated November 3, 1995 (the "11/3/95 8-K"). The exhibit numbers correspond
to the exhibit numbers in the referenced document.
Exhibit No. Description of Exhibit
----------- ----------------------
*3.1 - Articles of Incorporation dated December 28, 1990 (S-18).
*3.2 - Articles of Amendment dated May 7, 1991 (S-18).
*3.3 - Articles of Amendment dated May 21, 1991 (S-18).
*3.4 - By-Laws adopted June 3, 1991 (S-18).
*10.1 - Shareholders Agreement dated April 29, 1991 by and among
the Organizers of the Registrant (S-18).
*10.2 - Employment Agreement dated April 1, 1991 between the
Registrant and Christine L. Jennings (S-18).
*10.3 - Employment Agreement dated April 29, 1991 between the
Registrant and Christine L. Jennings (S-18).
*10.6 - Lease Agreement dated June 3, 1991 between the Registrant
and Theodore C. Steffens, Receiver regarding lease of office
space in One Sarasota Tower, Sarasota, Florida (S-18).
*10.7 - Ground Lease Agreement dated November 30, 1993 between the
Registrant and One Sarasota Tower, Inc. (1993 10-KSB).
*16 - Letter to Securities and Exchange Commission from KPMG
Peat Marwick LLP dated January 12, 1996 (11/3/95 8-K).
*21.1 - Subsidiaries of the Registrant (1992 10-KSB).
27.1 - Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K. No Current Reports on Form 8-K were filed by
-------------------
the Company during the quarter ended December 31, 1996.
45
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto authorized.
SARASOTA BANCORPORATION, INC.
Dated: March 27, 1997 By: /s/ Christine L. Jennings
------------------------------------------
Christine L. Jennings
President and Chief Executive Officer
(Principal Executive Officer)
Dated: March 27, 1997 By: /s/ Susan K. Flynn
------------------------------------------
Susan K. Flynn
Vice President and Cashier
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature Date
--------- ----
/S/ SUSAN M. BAKER March 27, 1997
- ------------------------------
SUSAN M. BAKER
Class II Director
/S/ KENNETH H. BARR March 27, 1997
- ----------------------------
KENNETH H. BARR
Class II Director
March __, 1997
- ----------------------------
TIMOTHY J. CLARKE
Class III Director
March __, 1997
- ----------------------------
JAMES W. DEMLER, M.D.
Chairman of the Board and
Class I Director
/S/ CHRISTINE L. JENNINGS March 27, 1997
- ----------------------------
CHRISTINE L. JENNINGS
President, Chief Executive
Officer and Class III Director
[SIGNATURES CONTINUED ON NEXT PAGE]
46
<PAGE>
/S/ EDWARD S. LEVI March 27, 1997
- ------------------------------
EDWARD S. LEVI
Class I Director
March __, 1997
- ------------------------------
SAM D. NORTON
Secretary and Class III Director
/S/ MICHAEL R. PENDER, JR. March 27, 1997
- ------------------------------
MICHAEL R. PENDER, JR.
Treasurer and Class III Director
/S/ A. DEAN PRATT March 27, 1997
- --------------------------------
A. DEAN PRATT
Class I Director
/S/ STANORD H. ROSS March 27, 1997
- ----------------------------
STANFORD H. ROSS
Class II Director
/S/ GILBERT J. WELLMAN March 27, 1997
- ------------------------------
GILBERT J. WELLMAN
Class II Director
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.
No annual report or proxy material has been sent to security holders as of the
date of filing this report. An annual report and proxy materials will be
furnished to security holders subsequent to the filing of this Annual Report on
Form 10-KSB, and the Registrant will furnish copies of such material to the
Commission when they are sent to security holders.
47
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the Sarasota
BanCorporation, Inc. audited consolidated financial statements for the years
ended December 31, 1996 and 1995 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<RESTATED>
<CIK> 0000875707
<NAME> SARASOTA BANCORPORATION, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 2,467,658
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,718,000
<TRADING-ASSETS> 1,082,190
<INVESTMENTS-HELD-FOR-SALE> 11,212,512
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 31,308,782
<ALLOWANCE> (313,939)
<TOTAL-ASSETS> 49,475,203
<DEPOSITS> 43,861,763
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,686,762
<LONG-TERM> 0
0
0
<COMMON> 4,715
<OTHER-SE> 3,921,963
<TOTAL-LIABILITIES-AND-EQUITY> 49,475,203
<INTEREST-LOAN> 2,556,491
<INTEREST-INVEST> 643,639
<INTEREST-OTHER> 92,048
<INTEREST-TOTAL> 3,292,178
<INTEREST-DEPOSIT> 1,443,829
<INTEREST-EXPENSE> 1,530,411
<INTEREST-INCOME-NET> 1,761,767
<LOAN-LOSSES> 97,250
<SECURITIES-GAINS> 5,419
<EXPENSE-OTHER> 1,369,000
<INCOME-PRETAX> 550,127
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 550,127
<EPS-PRIMARY> 1.17
<EPS-DILUTED> 1.17
<YIELD-ACTUAL> 8.46
<LOANS-NON> 6,879
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 412,666
<ALLOWANCE-OPEN> 225,950
<CHARGE-OFFS> 15,413
<RECOVERIES> 6,152
<ALLOWANCE-CLOSE> 313,939
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
